Why are EPF and Insurance given extra attention in Malaysia when it comes to inheritance?
A lot of people think when it comes to distribution of insurance and Employee Provident Funds (EPF) monies, the beneficiaries will inherit it with little to no problem. Since that in both EPF and insurance, both entities have the options of choosing your beneficiaries and whatnot anyway.
Though that is true, there are some reasons why you will still need to include EPF and insurance monies in your wills and trusts.
EPF and Insurance Policies Have Beneficiary Nominations?
Before we go any further, let me explain how EPF and insurance policies work when it comes to money distributions.
EPF is where you accumulate money for retirement funds. This only applies if you work in the private sector in Malaysia. Basically, every month you and your employers will contribute a certain percentage of provident funds into your EPF accounts. EPF is also known as KWSP, by the way. The percentage of contributions will reflect in your pay slips.
If you go to KWSP to check your EPF account, you may notice that there is a section where you will be asked to nominate beneficiaries. Or the KWPS officers will advise you to nominate someone.
In insurance policies, it’s kind of similar to how EPF is like. You may or may not have cash values in your insurance policies. It also has a section where you can name beneficiaries too.
Both are similar in a sense that, in case you pass away before your time, the money in the insurance policy or the EPF will go to your beneficiaries. If you did not name anyone as beneficiary, Bank Negara Malaysia will hold on to that money.
When BNM holds on to that money, you will need to go through a process of proving that you are related to the deceased. You will also have to prove to BNM that you deserve to inherit that money too. It’s not exactly a hard process but more of an inconvenience.
What happens if you did not name any beneficiaries in your policies and EPF accounts?
If you did not name any beneficiaries in your EPF accounts and your insurance policies, then the money in those accounts will go to BNM. For example, let’s say your parents have passed away and left behind insurance policies and EPF accounts. However, they did not name you or anyone else as their beneficiaries in those accounts.
For you (and your siblings, if you have any), that means you will need to take your parents’ death certificates, identification cards, proof of relations (birth certs, for example), and other supporting documents to prove their deaths and your relationship with them. At the same time, write a letter or note stating what happened to your parents.
Note that when you have submitted all supporting documents, it does not mean you will get the money immediately. BNM will work closely with executors and administrators to see if your parents owe any money. Once the debts have been settled, whatever is left of your parents money will be distributed between you and your siblings.
The money will be distributed evenly and equally between you and your siblings according to the Distribution Act (1957) Malaysia. Note that Sabah and Sarawak may have different distribution laws than what West Malaysia has. So do take this with a grain of salt before assuming the same Act applies to both West Malaysians and East Malaysians.
Why should you list your EPF and insurance policies in your wills and trusts?
People often think that by just naming beneficiaries in their EPF and insurance policies mean they can rest easy over it. Though what they think is right to an extent, it does not mean that the money will follow through when you have passed away.
There were instances where the EPF money and insurance payout money don’t go to the named beneficiaries. When things like that happen, it has become very difficult for beneficiaries to claim that money. They may have to go to court to fight for that money. It can become a very difficult and complicated issue.
If the insurance policy money or EPF money did not get delivered smoothly to the beneficiaries, this is what you can do. Put a clause in your wills and trusts saying that the money you have in your insurance policy or EPF account will go to these named beneficiaries. If anything happens to your EPF or insurance policy, then at least your wills and trusts can back it up.
Bottom Line
When it comes to money in insurance policies and EPF accounts, don’t over rely on it. Sometimes, the money in those accounts may not follow through in the end. Don’t count your eggs before they hatch.
