Completing Your Life Insurance Using Insurance Trust. Your Next Wave Of Protection Is Here!
Do You Know That Your Insurance Is Not A Full Proof Way In Wealth And Estate
Protection Even With Its Nomination Made?
There are many different
types of insurance protection like life insurance, critical illness protection,
personal accident plan, etc, that protects you in the best way possible.
In this
article, we’ll focus on life insurance as the same concept can also be applied
to other insurance plans that involved beneficiaries.
You may ask me what life
insurance is in a laymen term. Life insurance is a protection where the
insurance company will pay a lump sum of payout to the beneficiary in the event
of the policyholder’s death or total permanent disability. The payout sum can
range from RM200,000 to a few million and is dependent on how much the premium
paid by the policyholder.
Let us use this illustration as an example. John, a
Sales Manager for a multinational company, have a life insurance protection of
RM1 Million and name her wife, Wendy and his only son, Henry, aged 20, as the
recipient beneficiary with the equal share. One of the John main goals of buying
life insurance is to ensure both of them have continuous financial support even
if he passes away suddenly. He hopes Henry could continue his postgraduate
studies and her wife to look after their elder parents; even he is not around
anymore.
During one of his outstation trip, John is in critical condition after
accidentally hitting a road lamp while trying to avoid a dog. Unfortunately, due
to serious brain injuries, John pass away that night in the hospital. The
insurance company will then pay the name beneficiary, Wendy and Henry each
RM500,000 as the insurance compensation.
They are both very frugal in their
spending at first. However, things start to change when both of them feel so
rich. All their relatives and friends were suggesting them to invest into
lucrative investment schemes. After a serious thought, Wendy follows one of her
friend advice on getting high and attractive potential return. She invested over
RM250,000 in a get rich quick scheme that promised a high return of 120% a
month. For the first few months, she did get the promised return and went for a
shopping spree. Wendy even top up another RM200,000 into the scheme for maximum
leverage. On the sixth month, the company go bust as the company was raided by
Bank Negara Malaysia due to some complaints on illegal deposit taking scheme.
The whole company asset was frozen and at the end, Wendy lost all her RM450,000
investment. She regretted it so much and facing a serious financial difficulty
in taking care of their parents.
His son, Henry, just got a new girlfriend. He hopes able to impress her by buying a BMW 3 series on cash, in order to date her
out. Every week, without fail, Henry spends a lot of money on dating and eating
out at expensive restaurants. They enjoy life to the fullest and were so madly
in love. They even have travelled to all the popular tourist attraction in
overseas. Good times do not last forever. In just less than a year, Henry left
with RM10,000 in his bank account and her girlfriend left him due to unknown
reasons. Now he is very sad and disappointed for not having enough funds to
continue his postgraduate education.
The above issue can be easily avoided if John setup an Insurance Trust. An Insurance Trust is basically created for the people who you don’t trust with money (Wendy and Henry) but you loved.
An Insurance Trust is an arrangement in writing in which the estate (RM1 million
insurance payout) is managed by a Trustee company, for the benefit of an
individual (Wendy and Henry). John will have a full control on how the estate to
be distributed. He will transfer the ownership and interest of the Life
insurance to the Trustee company. The Trust Deed governs the terms of the Trust
while the Trustee is obligated to act according to the Trust Deed under the
Malaysian Trustee Act.
A trustee is the people who you can trust to handle the
money. Upon John demise, the proceed of RM1 million insurance payout shall be
pay to the Trustee company and through a prior arrangement between John and the
Trustee company via Trust Deed, the proceed will be for the benefit of Wendy and
Henry. Both Wendy and Henry cannot spend the RM1 Million proceeds because it’s
not park under their personal name.
An Insurance Trust help in providing much
flexibility and protection in the form of estate management that is not
available under any conventional insurance policy. It provides the ability to
customise the terms to suit the needs and concerns of policyholders.
John has
the ability to set in the Trust Deed to gave both Wendy and Henry, a monthly
allowance of RM5,000 instead of a lump sum of RM500,000. This can avoid the
above unfavourable scenario where both of them lost all the money, from
happening.
Do keep in mind that Insurance Trust is NOT only meant for the
wealthy people as the middle-income and the average household can benefit from
the proper management and advice of a trustee. This is because one of the
country’s top estate planning companies, Rockwills Trustee, have made the retail
insurance trust so affordable with an set-up fee from RM1000, while the annual
fee for trust management ranges from as low as 0.25% depending on the amount
subject to a minimum of RM2000.
