Nz Life Insurance Ownership - Who Gets What?

Even the best functioning families in the world have been tossed into disarray when

determining which family member will get what after the death of a someone in the family. This scenario can occur as a result of an insurance contract being owned directly by the deceased 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.

Jointly owned policies by partners who subsequently separate is another area where problems can arise. The main issue here is that the policy will continue to be owned by the partners as joint tenants even after they separate. All policy decisions must then be agreed to by all of the policy owners before any changes can be made. It also results in the proceeds being automatically paid to the surviving partner in the event of the death of the other partner.

These outcomes might be in direct contrast to the intentions of the deceased. Only consent by all policy owners will enable a change in ownership of the policy, which is sometimes very hard to achieve especially if the partners have experienced a messy separation. A lot of clients try to avoid these problems by having their life insurance policies owned by their family trusts. NZ law, as it relates to life insurance policies, does not allow a family trust to own a life policy, however, the policy can be jointly owned by the individual trustees but the trust as an entity cannot own the policy.

While It is feasible to have different components of the policy owned by different entities ['tenants in common'], and while this goes someway to ensuring the proceeds of the policy are paid only to the intended benefactors, it also creates potential problems when one of the owners passes away, and his/her portion of the policy ownership passes onto his/her estate rather than automatically to the surviving owners as is the case with the standard 'joint tenants' ownership structure. Difficulty also arises if the trustees do not cooperatively act in accordance with the wishes of the trust following the receipt of the proceeds.

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.

by: Daniel Fletcher

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