Many Malaysians assume that once they’ve nominated someone for their life insurance policy, their estate planning is done.

But is a nomination alone enough to protect, guide, and manage the proceeds after your death?

Let’s clear the confusion—especially in light of Schedule 10 Paragraph 5 of the Financial Services Act 2013 (FSA 2013)—and see when a trust is still your most powerful option.

Insurance Nominations Under FSA 2013: What the Law Says

Under Schedule 10 Paragraph 5 of the FSA 2013, a statutory trust is automatically created by law if:
- A non-Muslim policyholder nominates their spouse, child, or (if no spouse/child) parent as the beneficiary.

This means:
- The insurance payout does not form part of the deceased’s estate.
- It is protected from creditor claims.
- The nominee becomes the beneficial owner of the money.
- The insurer is discharged from liability once payment is made to the trustee.

If no trustee is appointed, the nominee (if legally competent) will act as the trustee. Otherwise, the Public Trustee or a licensed trust company may step in.

Importantly: The policy owner cannot appoint themselves as trustee—a change from the repealed Insurance Act 1996.

What If the Nominee Is Not a Spouse, Child, or Parent?

If the nominee is anyone else (e.g. a friend, sibling, or business partner):
- The nomination does not create a trust.
- The nominee is treated as an executor—not a direct beneficiary.
- The policy money must be distributed according to the will or laws of intestacy.

So if your nomination doesn't fall within the “trusted class,” the money may not go where you intended—unless you create a separate trust.

Where a Separate Trust Still Makes Sense

Even if a statutory trust is created, it’s often not enough for full protection, control, and structured planning. Here’s why:

1. To Protect Minor or Vulnerable Beneficiaries
    A statutory trust gives the funds directly to the spouse or child. But what if:
    - The child is still a minor?
    - The spouse is financially inexperienced?
    - The beneficiary has special needs?

    A private trust allows you to set conditions and guidelines.

2. To Assign Insurance Proceeds with Detailed Instructions
    A nomination is simple and rigid. A trust is customisable and comprehensive.
    You can assign the policy to a trust, appoint a trustee, and include detailed usage instructions.

3. To Coordinate With Other Assets and Family Needs
    A trust allows you to pool insurance with other assets (cash, property, shares) for one integrated estate plan.

Summary: Nomination vs. Trust