Trust Policies – A Unique Benefit for Business Owners

The objective of Trust insurance policies is to establish a fund for the benefit of immediate family members of the policyowner which is not subject to creditors. This is the only asset a policyowner can own and control and yet enjoy such creditor protection benefits.

What are the features of such a policy?

·         It must be a life insurance or personal accident contract which a Non-Muslim policyowner purchases on his own life.

·         Nominees must be named in the contract and these are confined to the spouse and children of the policyowner. If the policyowner is single, parents who are named as nominees also qualify for these benefits

·         The appointment of Trustees in the policy is optional. If appointed, their duties are as follows

i)                   during the life-time of the policyowner, the consent of the Trustees is needed to make any contractual changes in the policy contract;

ii)                 upon the death of the policyowner, the Trustees receive the claim proceeds and are responsible to pay out or manage the fund for the beneficiaries.

·         It must be noted that the unique credit protection benefits in Trust policies may not be available to a policyowner if he had purchased the contract during a period of time when he was insolvent or was subject to legal action by creditors.

·         If the policyowner is declared bankrupt during his lifetime, the policy contract may have to be surrendered for its cash value which may be utilised to satisfy the creditors. This is subject to the discretion of the Director General of Insolvency.

·      The law relating to Trust policies is found in Section 166 of the Insurance Act 1996.