On a life insurance policy, who is qualified to change the beneficiary designation

Questions and answers

1. The insurance company appointed a doctor for my medical check-up before approving my insurance application. The doctor failed to discover a health problem that I did not disclose in my application form. Can the insurance company deny my claim based on the non-disclosure principle if subsequently I make a claim related to the health problem under the insurance policy?

Under the principle of “Utmost Good Faith”, the insured person or the policyholder has the duty to disclose to the insurance company all the information relating to the purchase of the insurance.

Therefore, irrespective of there having been a medical examination conducted by a doctor appointed by the insurance company who failed to diagnose the health problem, the insurance company may still deny your claim. This is particularly so if your non-disclosure is material and affected the assessment of your risk profile by the insurance company.

2. Can I get back my insurance premium before my death under a Life Insurance Policy?

Refer to the terms and conditions of your Life Insurance Policy to check whether there is any provision for redemption of the insurance premium before the death of the policyholder.

Some Life Insurance Policies offer a Guaranteed Cash Value that accumulates throughout the policy term. You can receive it in a lump sum if you terminate the policy or when the plan matures and terminates once the insured person reaches a certain age.

3. My insurance agent asked me to transfer my existing Life Insurance Policy to another insurance company. Would there be any potential losses arising from such a transfer?

Prior to switching your Life Insurance Policy to another insurance company, you should be careful that your agent is not making inaccurate or misleading statements or comparisons to persuade you to switch. This is not uncommon, as your agent may earn a commission from your switching to another insurance company (where the agent is also switching to a new insurance company).

There are two major matters that you must consider carefully.

Firstly, in connection with your application for the new insurance, you will be required to answer questions about your health, occupation and lifestyle. If the new insurance company rejects your application because of any of the updated information disclosed in the application, you may be required to inform your existing insurance company of the rejection and the reason(s) under the "change of circumstances" clause (if any) in your existing policy. This may lead to your existing insurance company canceling your policy or requiring you to pay a higher premium.

Secondly, the new policy may contain different provisions and the "incontestable period" under the new policy may start afresh. The worst case is the possibility of a claim being rejected under the new policy which would otherwise have been paid under the existing policy.

In order to protect consumers against the above risks, there is a requirement for them to complete the Customer Protection Declaration Form (the "CPD Form"), which can be downloaded from the website of the Hong Kong Federation of Insurers. Where there is a switching or replacement of a policy, the insurance agent must declare on the CPD Form that he/she has fully explained the possible risks to the client. The client must also declare that he/she understands these risks. In this case, the cooling-off period is 14 days from the date a copy of the CPD Form is delivered to the existing insurance company by the new insurance company.

In summary, make sure that your insurance agent is not making inaccurate or misleading statements or comparisons to persuade you to switch. Any additional genuine and legitimate benefit available under the new policy may make it worth switching, but you must be clear on the potential risks and what can be done to manage these risks.

4. What is the difference between a "revocable beneficiary" and an "irrevocable beneficiary"? Under what circumstances can I change an irrevocable beneficiary in my Life Insurance Policy?

The beneficiary in a Life Insurance Policy is the person(s) who will receive the death benefit from the insurance company upon the death of the insured person. There is a "Beneficiary Designation" section in Life Insurance Policies in which the policyholder names the party or parties as the beneficiary or beneficiaries who will receive the proceeds of the death benefit.

A revocable beneficiary designation gives the policyholder the right to change the beneficiary without the consent of the named beneficiary.

An irrevocable beneficiary designation does not give the above right. That is to say, the consent of the named beneficiary must be obtained before the policyholder can change the beneficiary. The policyholder can only change the beneficiary if the named irrevocable beneficiary shown on the policy consents to the proposed change.

5. My son is now 15 years old. Can I name him as the beneficiary in my Life Insurance Policy? Would he be entitled to receive all the proceeds if I die before he reaches the age of majority (i.e. the age of 18)?

Yes, you can name your son (who is a minor) as the beneficiary of your Life Insurance Policy.

You should arrange to name a guardian and/or trustee to receive and manage the proceeds on his behalf until he reaches the age of majority, after which he can inherit all the proceeds directly.

6. The insured person has disappeared for several years. Can the beneficiary submit a claim for the death benefit under the relevant Life Insurance Policy?

Firstly, if the beneficiary is in a legal position to do so (e.g. he/she is the spouse, parent or child of the insured person), the beneficiary must obtain a court declaration that the insured person is legally dead. In Common Law, a person is considered legally dead if the person has disappeared for seven years or more, unless there is any evidence to the contrary.

Once the court issues a declaration that the insured person is legally dead, the beneficiary can submit a claim to the insurance company for the death benefit. Regarding the procedural details on how to apply for a court declaration, please consult a solicitor.

7. If my insurance policy has lapsed and I try to "reinstate" my policy by paying the premiums again, can I submit any claims to the insurance company at this stage?

Usually there is a "reinstatement" clause which provides that a Life Insurance Policy that has lapsed (usually due to non-payment of premiums) can be reinstated provided that certain conditions are met.

It may be less expensive to reinstate a policy than to purchase a new one. The premium for a new policy would likely be more expensive since the insured person would have grown older. Therefore, the person's risk profile would likely fall into a higher premium category.

The insured person may need to show to the insurance company evidence of insurability (e.g. a satisfactory medical report). This condition is usually waived for lapses of less than two months.

During the time in which the policy reinstatement is being processed, any claim submitted would be held pending the approval of the reinstatement application by the insurance company.

8. Can I change the beneficiary of my life insurance policy by stating that in my will?

Once a person has purchased a valid policy, the entitlement to the proceeds is controlled by the policy itself. It falls outside the estate and a policyholder generally cannot alter the beneficiary through his will. If he/she wants to change the policy beneficiary, it has to be done through the policy issuer.

9. How should I keep my life insurance policy? Do I need to inform anyone that I have purchased life insurance?

It would be advisable to keep the life insurance policy in a bank safe-deposit box or in another safe place. It would also be advisable to give a copy of your life insurance policy to the intended executor of your estate and/or the beneficiaries, as you deem appropriate, so that someone whom you trust knows about the policy and will take active steps to make a claim with the insurance company after your death.

It is appropriate and prudent to inform someone you trust that you have purchased a life insurance policy; otherwise, if no one knows about the existence of the Policy, it may go unclaimed. Another consideration is that the insurance company may not know the insured person has passed away.

10. Does the beneficiary need to supply the insurance company with the original of the life insurance policyin order to make a claim or will a copy suffice?

For some insurance companies, producing the original life insurance policy is not essential for a claim payout under the Policy. You need to check the terms under the Policy.

11. Is there a time limit for making a life insurance claim?

In the normal course of events, there is no time limit to claim a life insurance policy. However, it would be prudent to check the terms of the policy to see if any time limit is imposed.

In practice, some insurance companies have on hand life insurance policies taken out 100 years ago which no one has yet claimed, so they have teams that search for the relevant beneficiaries.

In any event, you should check the terms of your own life insurance policy for the time limit, if any.