As part of its free education forum CONNECT, Colina Insurance Limited is helping consumers gain a comprehensive knowledge of how to manage their life insurance and related financial planning products. In its latest installment, CONNECT focused on the theme "Who's getting what you've got when you're gone?" aimed at providing important information on the life claims process, the legal considerations and the importance of choosing the right beneficiary. The key issues covered at that forum are being featured weekly in The Nassau Guardian. The following is the second in a two-part series that was taken from a presentation made by Janice Butler, manager, Central Processing Unit, Colina Insurance Ltd. on the subject, "Who is your beneficiary?"

The designation of a minor child as beneficiary is very common in the The Bahamas. There are many instances of parents designating their minor children on the application for insurance, only to encounter unforeseen problems after the insured person is deceased.
Prior to naming a minor child as a beneficiary of a life insurance policy, it is important to understand the implications of this decision.
o Minors lack contractual capacity, and therefore insurance proceeds cannot be paid directly to them until attainment of the legal age of majority (18 in The Bahamas).
o Both parents could die simultaneously leaving the minor child exposed to improper care soon after you decease.
o If the surviving spouse is excluded as a named beneficiary, the surviving spouse's financial needs could go unmet resulting in financial hardship for your minor children soon after you decease.
o The courts without regard for the parent's wish may appoint a guardian.
When naming a minor beneficiary, the policy owner should always appoint a guardian as trustee or create a trust to receive and manage the insurance proceeds on behalf of the minor.
A policy owner can specify on the beneficiary form how proceeds are to be distributed.

The following are some
of the most common forms of instructions:
o A policy owner can specify by share percentage - i.e., 50 percent to my wife Mary Smith, 25 percent to my son Charles Smith and 25 percent to my daughter Ruth Smith.
o A policy owner can specify by equal shares - i.e., my wife Mary Smith, my son Charles Smith and my daughter Ruth Smith in equal shares.
o A policy owner can specify dollar amounts - i.e., $50,000 to my wife Mary Smith, $25,000 to my son Charles Smith and $25,000 to my daughter Ruth Smith.
o A policy owner can also include other special instructions - i.e., primary beneficiary John Doe (son) 50 percent if living, if not then his 50 percent to his eldest son. A third level of beneficiary can be used naming a third person in the event the primary and secondary beneficiary is deceased; or specify the deduction of burial expenses, or to pay out proceeds in installments at specified ages.
How often should I review my beneficiary designation?
Most people give considerable thought to who they will name as beneficiary at the time of application for insurance. The problem arises when, over time, those designations are no longer valid.
Your beneficiary designation should be reviewed periodically in order to protect your beneficiary(s) and ensure the policy proceeds go directly to whom you intended to receive them. You should review your beneficiary designation whenever your personal, financial or professional situation changes.

Can I assign my life insurance policy as collateral?
Yes. Assignment of a life insurance policy is a contractual right of a policy owner. An assignment is an agreement under which the policy owner (assignor) transfers all or some of its ownership rights in a life insurance policy to another party (assignee). The assignee usually requires the submission of the policy contract as proof of collateral. There are two types of assignments:
o Absolute: Assignment by which the policy owner (assignor) transfers all rights, title and financial interest in the policy to the assignee. The assignee then becomes the policy owner. For example, a person applying for a loan from a financial institution can assign a life insurance policy as collateral for the loan in the event the person dies prior to full repayment of the loan.
o Collateral: A temporary assignment of the monetary value of a life insurance policy, or security for a loan. The policy owner retains ownership rights to the policy but cannot surrender or take policy loans without the consent of the assignee. If the death proceeds become payable, the assignee is only entitled to the amount of indebtedness as a lump sum payment.
The assignment agreement is terminated when the policy owner (assignor) repays the amount owed to the assignee. And a release letter is then executed to confirm. The agreement is also terminated if/when the death proceed is paid.

What if I divorce and my ex-spouse is named beneficiary?
Under the Married Woman's Property Act, (and prior to the new Insurance Act coming into effect on July 2, 2009) any spouse named in an application for insurance is deemed irrevocable and has a vested interest in the life insurance policy. Therefore, a divorce, in itself, did not revoke the ex-spouse's interest.
This means that the ex-spouse must consent in writing by signing the change of beneficiary form in order for the policy owner to change his/her beneficiary. Only where the divorce settlement includes a provision of beneficiary revocation, the policy owner's rights to change the beneficiary will be restored.
Under the new Insurance Act dated July 2, 2009, a policy owner can request a change of beneficiary without obtaining the ex-spouse's signature, if the marriage ended in a divorce. So for policies issued subsequent to July 2, 2009, obtaining the consent of an ex-spouse for a change of beneficiary is a non-issue.

How do I change my beneficiary?
A policy owner may contact his or her insurance company and communicate the request for a change of beneficiary.
The change of beneficiary process is simple and straightforward for policies with revocable beneficiaries, as written consent is not required from a revocable beneficiary if a policy owner wishes to perform a change of beneficiary. A beneficiary change form provided by the insurance company is completed indicating the new beneficiary(s) signed by the policy owner and witnessed by the customer service representative.
This process can be more difficult, however, if your beneficiary is irrevocable, since a change of beneficiary cannot be executed unless the irrevocable beneficiary consents in writing by signing the change of beneficiary form.

Click here to read more at The Nassau Guardian