Legal Tips

Bankruptcy and Insurance

Document Date: 01-Mar-2011

Here are some Frequently Asked Questions on the topic "Bankruptcy and Insurance":

1. Can a person who has been declared a bankrupt take up an individual life policy with NTUC Income?
2. Can an undischarged bankrupt take up a third party policy on the life of his child?
3. Will NTUC Income allow the spouse of an undischarged bankrupt to take up a third party policy on the bankrupt's life?
4. What will happen to the life policy of an existing policyholder who has been declared bankrupt?
5. How can a person protect the interests of his/her family in the event that the person is made a bankrupt?

1. Can a person who has been declared a bankrupt take up an individual life policy with NTUC Income?
   
   As bankruptcy limits the legal capacity of a person to enter into a contract, that person may take up such an insurance policy only if the Official Assignee consent. However, that person cannot be a member of NTUC Income so as to allow him to make nominations or exercise other rights of membership with NTUC Income. This is because, under the Co-operative Societies Act, a bankrupt is not eligible to be a member of a co-operative society.
   
   

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2. Can an undischarged bankrupt take up a third party policy on the life of his child?
   
   An undischarged bankrupt is not allowed to take up a third party policy on the life of the child or spouse, unless the Official Assignee gives consent for such a policy to be taken up. This is because the main priority of a bankrupt is to discharge the debts owed by him/her. Any money or property not expanded for the necessary expenses of maintenance of the bankrupt and the bankrupt's family, will not be permitted to be used to pay the premiums of a policy on the life of the child or even the spouse.
   
   

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3. Will NTUC Income allow the spouse of an undischarged bankrupt to take up a third party policy on the bankrupt's life?
   
   NTUC Income may allow the spouse of an undischarged bankrupt to take up a third party policy on the life of the bankrupt on a case by case basis, taking into account any moral hazards it may have in underwriting the policy.
   
   

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4. What will happen to the life policy of an existing policyholder who has been declared bankrupt?
   
   When a person is declared a bankrupt, all property belonging to that person vests in the Official Assignee, including any life policy belonging to him. The Official Assignee is entitled to surrender the bankrupt's policy and apply the surrender value towards the settlement of the bankrupt's debts.  The bankrupt policyholder cannot give any instructions on his policies, only the Official Assignee can.
   
   

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5. How can a person protect the interests of his/her family in the event that the person is made a bankrupt?
   
   A person can protect his/her family by making a trust nomination of his life policy under section 49L of the Insurance Act. When a person makes a trust nomination, that policy and the moneys payable under the policy are not subject to the person's debts. This means the person's creditors cannot have any claims over the policy moneys. However, the person only enjoys such protection from his/her creditors if that person did not take up the policy to defraud his creditors.  If it is proved that the life policy was effected, and the premiums for the life policy were paid, with intent to defraud the creditors of the policy owner, the creditors shall be entitled to receive out of the policy moneys a sum equal to the premiums so paid.