What is the main purpose of a policyholder effecting a Personal Accident insurance on the policyholders’ life? The common answer to this question is to enable their loved ones to have ready access to the money at the time of calamity to the policyholder.
Let’s take the case of Wong Ah Kow who has effected RM500,000 Personal Accident insurance on his own life. The insurance policy is issued in his own name, Wong Ah Kow. Let’s look at what happens if a fatal accident befalls Wong Ah Kow and he passes away without making a will.
As the insurance policy is in Wong Ah Kow’s name the insurance policy proceeds will go to his estate. In normal circumstances the appointed administrator of the estate will need to get the Letter of Administration before the insurer will make the claim payment. This will take about two to three years to be issued by the authorities. Meantime the insurance company cannot pay out the proceeds until the Letter is issued. When the Letter is issued, Wong Ah Kow’s loved ones may not necessarily get the proceeds depending on the terms and conditions of the Letter of Administration. Thus, it may take a few years before the insurer issues the claims cheque.
As you can see, effecting a personal accident insurance in this manner does not help the loved ones in the near or immediate term of the calamity.
The most effective way to have the proceeds fast is to effect the insurance policy based on the life of another. Let us take the scenario where the wife effects the insurance on the life of Wong Ah Kow. The insurance policy will now read like this: Chan Siew Lan on the life of Wong Ah Kow.
The owner of this insurance policy is Chan Siew Lan. If a fatal accident befalls to Wong Ah Kow, Chan Siew Lan need only produce the Death Certificate and Post Mortem Report to claim on the proceeds of the insurance policy. This normally will take less than a month before the insurer makes the claim pay out. And the claim cheque is in the name of Chan Siew Lan.
Note: Fictitious names are used in this article