Estate planning basics: how a life payout passes to your family

Buying life insurance answers the question of how much your family will receive. Estate planning answers a different one: how, and how quickly, they will receive it. The two are often confused, and the confusion is costly, because a payout that is stuck in a legal process for months does not help with the bills that arrive in the first weeks. This guide explains the three routes a life payout can take in Singapore and how to choose between them.

Route one: an insurance nomination

The Insurance Act lets the owner of a life policy, or of an accident and health policy with a death benefit, name who receives the payout. The LIA glossary sets two conditions: the policy owner must be the life insured, and must be at least 18. There are two kinds of nomination, and the difference matters.

• A trust nomination takes precedence over a will. Once made, the policy owner gives up ownership rights in the policy and can only revoke the nomination with the consent of every nominee. It is the more protective option for a spouse or children, and the harder one to unwind.
• A revocable nomination can be changed, added to or removed without anyone's consent. The insurer pays according to the last valid document at the date of death, which may be the nomination or a later will.

MoneySense describes nomination as an affordable legal means of directing the benefit. It is also fast: the LIA says that for straightforward claims an insurer pays within 14 days of receiving all the documents, and a nomination removes the need for a court grant before payment.

Route two: your will and probate

If there is no nomination, the payout forms part of your estate. Your executor applies to the court for a Grant of Probate, and MoneySense estimates the whole process at three to six months. Only then can the executor collect the insurance proceeds and distribute them under the will.

There is a partial shortcut. Under the Insurance Act an insurer may pay up to S$150,000 to a "proper claimant", typically a close family member, without waiting for probate. Anything above that goes to the executor. So a large policy with no nomination will be split: part paid quickly, the balance held until the grant is issued.

If you have a will, review it whenever your circumstances change. MoneySense lists marriage, the birth of a child, divorce and a beneficiary's death among the triggers. Executors and trustees should be people who are willing and able to do the job, and if any beneficiary is under 21 you need two executors or trustees.

Route three: nothing in place

With neither a nomination nor a will, the estate, including the insurance proceeds above the proper-claimant amount, is distributed under the Intestate Succession Act. The family must apply for Letters of Administration, the administrator must post a bond with two sureties, and the shares are fixed by law: a spouse and children split the estate half and half, for example, and elderly parents receive nothing in that case. MoneySense warns that intestacy is slower, more expensive and often produces results the deceased would not have chosen. The Act does not apply to Muslims, whose estates are distributed under Muslim law after an Inheritance Certificate is issued by the Syariah Court.

What sits outside all three routes

Some assets never pass through the estate, and it is worth knowing which:

• CPF savings. Balances in the Ordinary, Special, MediSave and Retirement Accounts are not covered by a will. Without a CPF nomination they go to the Public Trustee's Office for distribution under intestacy rules, with a fee. A CPF nomination is made separately from any insurance nomination, and marriage revokes an existing one.
• Jointly owned property and joint accounts. Under a joint tenancy the survivor takes the whole property automatically. Tenancy-in-common shares go through probate.
• The Dependants' Protection Scheme. DPS is a term policy administered through the CPF system with its own nomination process; check it has been done.

Timing and the claim itself

The LIA's claims guidance sets out what to expect. Notice of a death claim should be given in writing within 30 days of the event, or as soon as possible. The insurer acknowledges within seven days, tells you within 14 days if it needs more, and decides within 21 days of receiving full information. If a death claim is paid more than two months after written notice, the insurer adds interest at the rate the LIA publishes. Insurers can refuse a claim where material information was withheld at application, which is one more reason to complete proposal forms carefully.

Keep a list of every policy with the insurer's name and policy number somewhere your family can find it. The LIA cannot search for a deceased person's policies on a family's behalf; each insurer has to be contacted directly.

Putting it together

For most families the practical answer is a nomination on each policy, a CPF nomination, and a will for everything else. Our coverage gap check looks at the size of the payout; this article is about making sure it lands.

Talk to an advisor

Nomination forms are short, but the choice between trust and revocable has lasting consequences, and a will needs legal advice to be valid. A licensed advisor can review every policy you hold and flag which ones have no nomination in place. Use the portal's matching to find one, or ask our assistant how a specific policy would be paid out today.

Sources

• MoneySense — Deciding how to transfer your estate
• MoneySense — Understanding estate planning
• Life Insurance Association Singapore — Making a Claim
• MoneySense — CPF nominations