Banks should allow assignment of policies

I REFER to the letters by Mr Allen Lim Chen Jye ('How to avoid tax on insurance proceeds'; ST, March 6) and Ms Maria Loh Mun Foong ('Exempt up to full value of main residence'; ST , March 1).

I can attest to Ms Loh's experience, as quite recently I highlighted to my clients the importance of assigning their mortgage insurance reducing-term (MRTA) policies to their mortgagees. One of them told me that her bank doesn't allow assignment of such mortgage policies, despite an ongoing mortgage agreement.

This agrees with a Business Times article, 'Private home loan-holders should assign policy to banks' (Feb 3, 2003), which stated that the majority of the local banks here do not accept assignment of MRTA plans.

The issue of insurable interest which Mr Lim brought up is debatable here. Before any policy can be underwritten, an insurable interest needs to be ascertained. When the MRTA is being underwritten, the insurable interest is established via the latest loan agreement with the lender stipulating the current outstanding loan amount. The insurable interest here is not proven by way of relationship between spouses.

Hence, arranging a cross-life policy whereby one spouse owns the policy of the other on a mortgage policy is near impossible. Usually, when a spouse owns a policy on the life of the other, it is strictly for personal income-protection reasons alone.

That said, may I suggest that banks and lenders consider allowing assignment of MRTA, to encourage homeowners to transfer to or stay with them.

As our country gears up to be a premier financial hub, banks with such foresight, and which are flexible enough to allow such assignment to take place, will be one up on their competitors.

This little flexibility will go a long way to relieve the financial woes of the widowed and their families.

Pearlyn Koh Siew Lin (Ms)