Imagine having to wait fifteen months after a partner’s death to receive a life insurance pay-out. Or even worse, a situation where an insurance policy on the life of a woman is now owned by her former husband’s new wife!

Both of these situations could have been avoided if care had been taken to sort out ownership issues around life insurance policies.

“The important thing is to understand how ownership works with regard to insurance,” says Sovereign Head of Claims, Pieter Breytenbach. “There is no one ownership solution that works for all. It is really important to discuss ownership of your policies with your clients to avoid mayhem and frustration at claims time.”

The most common ownership arrangement for life cover is joint lives and jointly owned policies. This means that when one of the lives assured dies, the other joint owner receives all of the claim funds as “surviving owner”. This also means that approval from both owners is required to make changes to the policy.

“Again people need to understand that ownership in this case is what is known as ‘joint tenancy’,” explains Pieter. “This means that ALL of the proceeds belong to the surviving owner. Some people think that half of the claim amount belongs to the estate of the deceased – this isn’t the case.”

When a person who is the owner of a policy on their own life dies, all of the proceeds now belong to the estate of the deceased. This means that if the amount is more than $15,000, the family must apply through a solicitor to the High Court for either Probate (if there is a will) or Letters of Administration (if there isn’t). This can some take time, particularly when there is no legitimate will in place. It can also lead to family squabbles over the claim funds.

“Fifteen thousand is a relatively small amount these days and sometimes family members left behind get frustrated and angry at the delay and having to employ a solicitor to settle the claim,” says Pieter. “This could have been avoided if there was a joint owner on the policy. We must act in accordance with the law and can’t short circuit the claim process in these cases.”

“Sometimes people are happy for funds to go into their estate on death and be dealt with by a will,”explains Pieter. “However again the important thing is to ensure your clients understand the process and have an ownership arrangement that best suits.”

Another really important thing is to consider ownership of insurance policies when there is an important change in your client’s life. For example, if they develop a terminal illness and own the policy on their own life – they should check if this arrangement still suits, if their will is up-to-date and powers of attorney are in place, and also whether they qualify for a terminal illness claim and early payment of their benefit.

“If there is a change in your marital status this is a key time to review ownership of your insurances,” adds Pieter.

Ownership issues involving insurance policies often cause upset and confusion at claim time – when your clients need and expect clarity and a quick resolution.

Did you know?

Processing time of a claim is nearly 7 weeks (48 days) quicker where there is a surviving owner (compared to where proceeds belong to a deceased person’s estate).

Here is a real example of how ownership issues can cause upset

Mr Smith owns a policy on the life of his wife Mrs Smith. The policy is a Whole of Life with a substantial surrender value.

Mr and Mrs Smith end their relationship but Mr Smith continues to be the owner of his former wife’s policy and pays the premiums.

When Mr Smith dies, his new partner at the time Ms Jones is named as executor and beneficiary in Mr Smith’s will. Ms Jones lawfully changes ownership of the policy into her name. She is now the owner of an insurance policy on the life of her late husband’s former wife!

Here are a few suggestions to give you peace of mind

1. Discuss joint ownership of insurance policies with us – this can speed up the process at claim time.

2. Remember you should review the ownership of their insurance policies as part of any separation agreement.

3. We encourage you to set up a will – this will help avoid disputes and confusion for loved ones left behind.

4. Confirm and document which policies you have – e.g. many people may have corporate work insurance and any KiwiSaver balances can be paid to the client’s estate.