NEW WORKSHOP! 10th June 2015 - The FSA & IFSA Insurance and Family Takaful



 

 

Assignments and the Need for Conditional Assignments             

 

An Assignment Deed is a legal instrument that transfers the ownership of an asset from the owner to another.

 

 

                     ASSIGNOR ---------------- ASSIGNEE

                        (Owner)                        (New owner)

 

 

A life insurance policy is recognized as an asset of an individual and thereby its ownership is generally allowed to be transferred to another by an assignment deed. Upon an assignment being effected, it is a complete transfer of ownership and cannot be withdrawn by the assignor. However, (just like any other asset), the assignee can transfer the ownership back to the assignor if he/she wishes to do so. This is effected by means of a “Reassignment” or “Revocation” of the assignment as practiced by insurance companies.

 

When an insurance policy is assigned, the benefits in the policy (unless specifically excluded in the policy contract) are payable to the assignee. These benefits would include cash bonuses, survival benefits, loans, surrender or maturity proceeds and of course death claim proceeds. Hence, such assignments have been  labeled as “Absolute Assignments”.

 

It is believed that in the early 1960s, some life insurers created a “modified assignment” and called this instrument a “Conditional Assignment”. This instrument was probably created because the laws prevailing at that time did not allow a beneficiary to be legally entitled to the proceeds of an insurance policy and could only make a claim if the Grant of Probate or Letters of Administration of the deceased’s estate were produced. Section 44 of the Insurance Act 1963 was later introduced as an amendment (in 1983), to allow beneficiaries to receive all or part of the death claim proceeds under certain conditions. Thus, the object of the Conditional Assignment at that time was to allow the policy owner (the assignor) to give the entire death claim proceeds to the beneficiary (an assignee) without the need for Grant of Probate or Letters of Administration. The situation had changed because Section 165(1) of the Insurance Act 1996 and now Para 4 of Schedule 10 of the FSA 2013  makes it mandatory for the insurer to pay the entire death claim proceeds to the named nominee(s) in a insurance policy.

 

The FSA 2013, in directing insurers to pay death claim proceeds to the nominees directly, further stipulates that some of them are not entitled to these moneys beneficially. Para 2(4) Schedule 10 states “The licensed insurer shall prominently display in the nomination form that the policy owner has to assign the policy benefits to his nominee if his intention is for his nominee, other than his spouse, child or parent to receive the policy benefits beneficially and not as an executor;…….”

 

The words used in this statutory provision i.e. “assign the policy benefits” clearly directs the insurer to allow the policy owner to assign the policy benefits and not necessarily the ownership of the policy.

 

Thus, it is now onerous on the insurer to create an assignment that provides for nominees, who are other than spouse, children and sometimes parents (commonly called “non-trust nominees”), to receive death claims beneficially and not merely as executors as provided in Para 6(3) of the FSA 2013. This provision again uses the words “policy moneys “and not “policy” with regards to assignments.

 

Therefore, a “Conditional Assignment” is now necessary to give “non-trust nominees” beneficial interest in the death claim proceeds of both life and personal accident insurance policies. Such an assignment may be provided by the insurers as “standard forms” or drafted in any other manner acceptable to them. Although the primary purpose is to give the claim proceeds to the assignee, other conditions may be introduced to give effect to this objective.. For example, the condition that “if the assignee predeceases the assignor, then the assignment is revoked” will be a natural requirement for these purposes.

 

As an alternative to executing a conditional assignment, the policy owner may also give the beneficial interest of the policy moneys to “non- trust nominees” by means of specific directions in his/her will by virtue of  Para6(2) of Schedule 10 of the FSA 2013.

 

The above discussion is to impress upon insurers dealing in life insurance and personal accident policies the need for allowing policy owners to assign policy moneys to specific persons if they desire to receive the death claim moneys beneficially. Such assignments may carry the label “Conditional Assignment” or  any other suitable name. Academics and lawyers  may find this concept unacceptable because it is alien to the principles of assignments as seen and applied with other assets and as taught in law school. It must be noted that the FSA 2013 and its predecessor for the insurance industry, the Insurance Act 1996   had created several peculiar legal “phenomena” applicable  to insurance contracts. Among the most significant of this, apart from the concept of “conditional assignments” is the principle of “suspended trusts”. This of course, is a matter to be discussed in another paper.

 

21^st April 2015

 

 

Latest Workshop 

The Financial Services Act 2013 & Insurance

The Financial Services Act 2013 which came into effect on 30th June 2013 is one of the most significant legislations ever to affect the Malaysian financial sector. This Act replaces and thus repeals  several Acts, including the Banking and Financial Institutions Act 1989 (BAFIA), the Exchange Control Act 1953, the Insurance Act 1996 and Payment Systems Act 2003.

In conjunction with the implementation of the Act, I will be conducting a workshop that will focus on the relevant provisions and changes which significantly affect the Insurance industry in Malaysia. 

Do contact us to sign up! Seats are limited, so book your place today!

The Financial Services Act 2013 & Insurance 
A Handbook

I am pleased and thrilled to announce the launch of my new book! This book is an essential guide to the Financial Services Act 2013 and its impact on the operational aspects of life and general insurance.  

The Financial Services Act 2013 came into effect on 30th June 2013 and is one of the most significant legislations ever to affect the Malaysian financial sector. This Act replaces and thus repeals  several Acts, including the Banking and Financial Institutions Act 1989 (BAFIA), the Exchange Control Act 1953, the Insurance Act 1996 and Payment Systems Act 2003. This handbook is intended to serve as a guide to those involved in the application and operational aspects of life and general insurance.

The focus of this book is on Schedule 8, Schedule 9 and Schedule 10 of the Financial Services Act 2013 and would thus serve as a useful tool to those in the underwriting, policy servicing, claims, training and group insurance departments of insurance companies in Malaysia. 

The Handbook will be available for purchase at leading bookstores from mid-August 2013 onward.  

Payment of Death Claim Proceeds to Minors in a Trust Policy

The Insurance Act 1996 provides 2 different sections that allow insurers to make payment of death claims where the nominees of the policy are minors. These are found in Section 166(3) and S170.

There is an apparent “overlap” that may occur in some circumstances.

Section 166(3) is more specific for trust policies and directs the insurer to consider the surviving parent as a trustee. The insurer may thus pay the incompetent (minor) nominees moneys to the surviving parent and shall receive a proper discharge for all liability.

Section 170 is probably intended as a wider and general provision as the words in the section also include incompetent nominees who are of unsound mind. Section 170a(ii) further provides that where the policy moneys are more than RM10 000.00, the insurer should pay to the Public Trustee.

Following the above, it is thus quite obvious that there seems to be an overlap of the provisions in the Act when nominees of trust policies are minors.

It is therefore contended that an insurer has a discretion to apply either of the above two provisions when paying out a claim. It is further contended that where there is a surviving parent, the law must have intended that Section 166(3) to apply and payment ought to be paid to the surviving parent. It must also be borne in mind that payment to the Public Trustee will incur expenses in that fees will be charged. These may be completely avoided if payment is made a surviving parent.

For easy reference, the two relevant sections are quoted below.

Section 166(3)

The policy owner, by the policy, or by a notice in writing to the licensed insurer, may appoint trustees of the policy moneys and where there is no trustee

a)      the nominee who is competent to contract; or

b)      where the nominee is incompetent to contract, the parent of the incompetent nominee and where there is no surviving parent, the Public Trustee.

Section 170Where a person has not attained the age of eighteen years, or who is certified by a medical practitioner in the public service to be of unsound mind and no committee of his estate had been appointed, or to be incapable, by reason of infirmity of mind or body, of managing himself and his property and affairs, the licensed insurer

a)      in case of a nominee under subsection 166(1)

i)                    if the policy moneys are ten thousand ringgit or less or such other amount as may be prescribed, may pay to a person who satisfies the licensed insurer that he will apply the policy moneys for the maintenance and benefit the nominee under subsection 166(1), as the case may be, or a person to whom policy moneys are payable under subsection 169(2) or (6), subject to the execution of an undertaking by that person that policy moneys will be applies solely for the maintenance and benefit of the nominee;

and

ii)                  if the policy moneys are more than the amount in paragraph (a)(i), pay to the Public Trustee or a trust company nominated by the Public Trustee;

in the case of a person to whom policy moneys are payable under subsections 169(2) or (6), pay to the Public Trustee or a trust company nominated by the Public Trustee.

2-Day Workshop - Legal Aspects of Life Insurance

17th and 18th October 2012

Royal Lake Club, Kuala Lumpur

An Exclusive Workshop for:

• Heads of departments, managers and executives of Claims, Policy Servicing, Underwriting, Group Insurance, Training and Operations Department of Life Insurance companies and Takaful Operators.
• Managers and executives of banks and trust companies involved in Banccasurance.
• Trainers, lecturers, and moderators of insurance and financial planning courses
• Advocate & Solicitors and legal officers of insurance companies and takaful operators

Workshop Topics:

Legal Aspects of Life Insurance

Day 1 – 17th October 2012

I. Formation of Contract

• Offer and Acceptance
• Consideration and “Interim Coverage”
• Principle of Utmost Good Faith
• Basis Clause
• S.147(4) Insurance Act - Incontestable/Indisputable Clause

II. Takaful Principles

• Comparison with conventional insurance
• al-Gharar, al-Maisir & al-Riba

III. Insurable Interest

• S.152 Insurance Act
• Understanding Insurable Interest
• Industry Practices

IV. Duty of Disclosure

• Basis of the Duty
• Traditional View – Lambert’s Case
• The change in the law – S.150(1) Insurance Act
• Exceptions to the duty of disclosure – S.150(2) & (3) Insurance Act

V. Insurance Agents

• Principal – Agent Relationship
• Agent and the proposal form
• Position taken by the law
• Knowledge of the agent S.151 Insurance Act
• Liability of insurer on terminated agents

VI. Group Insurance

• Disclosure requirements and the insurer’s liability to individual members

Day 2 – 18th October 2012

VII. Nominations

• Nominees as Executors
• Payment to Nominees
• Retrospective implications

VIII. Trust Policies

• Nominees of Statutory Trusts –S.166 Insurance Act
• Appointment of Trustees
• Implication of “Credit-Proof” moneys

IX. Policies of Muslims

• S.167(2) Insurance Act
• Distribution of policy moneys
• Policies effected before 1st January 1997

X. Assignments

• Absolute/Conditional assignments
• Assignments and their uses
• S.168 Insurance Act

XI. Payment of Death Claims

• Statutory requirement of insurers
• When there are no named nominees
• Position taken by the law

XII. Bankruptcy

• Principles affecting life insurance policy administration and claims
• Fraud & S.166(5) Insurance Act
• Use of Absolute assignments and Applicant-Owner policies

     Highlights of the Workshop

• Nominations, trusts and assignments – their uses, legal implications and related sales and marketing ideas.
• Payment of claims and practical guidelines to avoid legal disputes
• Recommendations for preparing new business and policy servicing forms
• Guidelines for training administrative and agency personnel 

  Workshop Leader

   K KARUNAMOORTHY

   B.Sc (U.Mal), LL.B (Hons) (Lond), CLP

   AMII, ACII (Lond), CFP,Shariah RFP

      Karunamoorthy, an advocate and solicitor by qualification,has been a consultant and trainer in the financial services industry since 1979. His wide range of educational qualifications and vast experience has made him a leading authority on the subject of life insurance law and estate planning. He has provided his expertise to insurance companies, banks, unit trust companies, trust corporations and various professional associations in Malaysia. He is also a regular trainer and consultant in law and financial planning and has authored several books and publications on these subjects.

  Workshop Details

   Date : 17 and 18 October 2012 (Wednesday & Thursday)

   Time : 9.30am - 5.30pm

   Venue : Royal Lake Club , Perdana Room 2 , 2nd Floor

   Jalan Cenderamulia, off Jalan Parlimen

   50480 Kuala Lumpur.

   Fee : RM 795 per participant

           RM 745 each for three or four participants from the same organisation

           RM 695 each for five or more participants from the same organisation

(Fee inclusive of a comprehensive reference manual, lunch and tea-breaks)

   Closing date for registration – 11 October 2012

   Enquiries:

   Contact – Ms. Devi at 012-2547552 or Mr Prashant 017- 2669997

   Ans.Service/Fax: 03-26923045

   Participants are advised to bring along a copy of the Insurance Act 1996

Medical Insurance Made Affordable

A major player in the indusry has a unique offer for those seeking to purchase medical insurance. Pacific Insurance Bhd has a scheme known as the Pacific Medi Major which provides for expenses incurred based on reasonable and customary charges for medical treatment. This is similar to many of the medical insurance schemes available in Malaysia but this scheme has one crucial difference. The premiums are much lower because the insured has to bear the first portion of the medical expenses incurred.

In a sense, this  is similar to the "excess clause" in a motor insurance policy. Those familiar with having made claims in a comprehensive motor insurance policy for any 'own damage' claim of the motor vehicle will know that the insurer will only reimburse the expenses which are above the "excess" amount.

The Pacific Medi Major operates in a similar manner. Let us have a look at a simple example with actual figures in order to understand how this scheme works.

If a person aged 48 intends to purchase a plan based on Hospital Room and Board of RM300 per day:

He can claim for expenses up to an annual limit of RM75,000.00
He can claim for expenses up to a lifetime limit of RM300,000.00
For every disability he claims from the insurer, he will bear the first RM5000.00 of the expenses
His annual premium will be RM431.00


Other features of this scheme are as follows:

1. An individual wishing to enter this scheme must be between the ages of 19 and 60
2. The insured has the option to renew the coverage up to the age of 80 (subject to the usual limitations)
3. Premiums are the same whether for male or female insured persons
4. Premiums are age banded i.e. the same rates will apply within a particular age band. The insurer may, however, increase the premiums based on overall claim experience with the approval of Bank Negara Malaysia
5. The insurer only pays out the claim after the insured has claimed from other insurers, if any
6. Pre-existing illnesses and other usual exclusions apply
7. Other features are very similar to those seen in most medical insurance schemes in the market

The Medi Major Plan is most suitable for:

• Those who are not willing to pay the higher premiums as seen in the market and are able to bear the first portion of the loss
• Those who are already having other medical insurance (for example, as provided by employees) but feel that such coverage is inadequate

Interested readers who require more details can post their questions in the comments section below or alternatively, visit www.pacificinsurance.com.my for further information.