| NZ Life Insurance Claims - Sorting Out Who Gets What |
 |
 |
 |
| Written by Daniel Fletcher |
| Friday, 15 October 2010 19:22 |
|
Even the most easy going families have been hurled into turmoil when deciding on which family member gets what after the death of a somebody within the family. This situation can come about as a result of a life insurance contract being owned directly by the recently parted family member.
Even the most easy going families have been hurled into turmoil when deciding on which family member gets what after the death of a somebody within the family. This situation can come about as a result of a life insurance contract being owned directly by the recently parted family member. In this circumstance a claim payment will often form part of the estate and may be controlled by the will, which may be contested, or alternatively where the family member has died intestate (i.e. with no current will), then the estate director will make a decision on how to pay the claim proceeds. Bear in mind that the executor of the estate will be unable to pay out the proceeds until after their work is complete. Many months or even years may pass by before a payment may be made. Some major issues will occur if the ownership of the death benefits provided under a life insurance contract has not been structured in a way that precisely reflects the intended use of the proceeds. Partners who jointly own their life insurance policies and whom subsequently separate will also find themselves with many obstacles to overcome. The main obstacle is that the policy will continue to be owned by both partners as joint tenants even after their relationship separation. All policy decisions must then be agreed to by all parties before any changes can be implemented. It also results in the proceeds of any claim being automatically paid to the surviving partner on the death of the other partner. The resulting outcome might be worlds apart from the intention of the deceased. Any changes to the policy ownership will not occur unless all policy owners agree, which in some situations may never happen especially if the wives/husbands/partners have been through a messy separation. Some clients will look to bypass these issues by having the family trust own their life insurance policies. New Zealand law forbids the ownership of a life insurance policy by a family trust, however, the policy can be jointly owned by the trustees of the trust. Whilst It is possible to have different parts of the policy owned by different entities ('tenants in common'), and whilst this helps to ensure the proceeds of the policy are paid only to the intended beneficiaries, it also creates problems when one of the owners dies, and his/her portion of the policy ownership passes to his/her estate rather than automatically to the surviving owners as is the case with the more common 'joint tenants' ownership structure. It also becomes increasingly difficult to ensure that the trustees cooperatively act in accordance with the wishes of the trust following the receipt of the proceeds, as well as keeping up to date with any trustee changes. Insurance contracts will only be effective if they remain relevant to the client's changing needs, therefore an ongoing regular review of the policy ownership structure is highly recommended to make sure that the insurance policy does what it ought to. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Visit our site for the best deals on NZ Health Insurance and NZ Life Insurance. |