How to decide the nominee for your life insurance?

While the nominee could be anyone you like, only an immediate family member can be a beneficial nominee. Keep reading to know more...

How to decide the nominee for your life insurance?

When you buy a life insurance policy, you would also select a person or a group of persons who would receive the benefit in case of your death during the term of the policy. This nominee can be anyone at all – spouse, children, parents, a distant relative or even a friend. If the nominee is not an immediate family member, the insurer may require you to nominate an immediate family member. Even if the insurer ends up accepting a non-immediate family member as a nominee, it could lead to legal disputes when a claim is filed and processed. Therefore, the general practice is to nominate someone from the immediate family of the insured. 

Beneficial nominee

Till 2015, other legal heirs of the insured were able to make claims to the death benefit alongside the nominee. To overcome this issue, the Government of India introduced the concept of a beneficial nominee. If the nominee is among the insured’s immediate family, then they would receive the total death benefit regardless of any other claims made.

It is important to remember that if the nominee is a distant relative or a friend, then he or she cannot be a beneficial nominee. If you wish to nominate such a person, you will also as an added security declare them a legal heir through a will – or assign the policy to them. This ensures that there are no disputes between the nominee and legal heirs later on. 

Related: Easy ways to buy a term life insurance policy

Minor nominee

You can choose to nominate your kid as the beneficiary for the policy. This makes sense as the policy is meant to secure their future in case of your unfortunate demise. But if your children are still under the age of 18 years, they are not considered legally eligible to receive the death benefit. In such a case, you would also have to select an appointee (or custodian) for the nominee.

If a claim arises while your nominee is still a minor, the benefit will be paid to the appointee for custody. He/she will pass on the amount to the nominee once they turn 18.

Related: Is Your Family Aware About Your Life Insurance Policy? Here's A Simple Way To Do It!

Benefits of having a nominee

Fulfil the purpose of insurance: The main purpose of getting a life insurance policy is to insure the interest of survivors in case of the policyholder’s death. Having a nominee ensures that the death benefit, including any bonuses, is accrued to the right person as per the desires of the policyholder.

Multiple nominees: The policyholder can choose to have a secondary nominee as well. In case of a claim arises and the first nominee has not survived as well – the death benefit is paid out to the second nominee. 

Sharing of the benefit: The policyholder can also nominate more than one primary nominee. In such a case the death benefit is shared among the nominees as per the allocation specified during the nomination process. 

Related: Death Claim: Is it possible to claim from more than one Life Insurance policy?

Cancellation of the nominee: As a policyholder, you can cancel or change nominee as often as you like. There is no upper limit on the number of times you change your nominee. 

Nominee particulars

When selecting a nominee you should provide the following details to the insurer:
    •    Name
    •    Age
    •    Address
    •    Relationship with the policyholder

You would also need to submit official documents showing the above details. 

Related: Common life insurance myths busted—numbers don’t lie

Change in nominee

As a policyholder, you can change the nominee and the nominee’s details as and when you desire. You could do this even when the policy is in force. All you have to do is to get the nomination form from the insurer – either online or offline and submit it along with required documented proof. 

Make sure that you receive an acknowledgement of the change from the insurer. This will ensure that there are no discrepancies at the time of claim processing. Once the nomination is changed, the previous nominee will not have any claim to the benefits anymore. As stated earlier, there is no restriction on the number of times the nominee can be changed. 

In the unfortunate case of nominee’s demise during the term of the policy, it is the policyholder’s responsibility to file a new nomination. It is also the policyholder’s responsibility that any changes to the nominee’s details are also reflected in the policy. 

No nomination found

If, for some reason, the insured misses out on adding a nominee or the nominee dies during the term of the policy and the policy is not updated, the following rules are applied:

1. If no will has been made by the policyholder with respect to the life insurance policy, the sum assured and any bonuses are dispatched to Class 1 legal heirs. Class 1 legal heirs include:

    a    Spouse
    b    Son
    c    Father and
    d    Mother

2. If the policyholder has made a will:

    a    The process laid out in the Indian Succession Act, 1925 is followed
    b    The death benefit is distributed based on the terms of the will
    c    This will only be done after the court issues a succession certificate
    d    The insurer would also ask the beneficiaries to provide indemnity or waiver of legal evidence towards the insurer.

Related: Life insurance 101-Everything you want to know about life insurance

Nomination vs. assignment

You could also assign your life insurance policy to someone else. What this means is that the rights to use the benefits from the life insurance policy are transferred to an assignee. This takes precedence over the nomination and is done through a separate deed. 

For example, you could use the life insurance policy as a guarantee on a loan. In such a case, you would make a conditional assignment – that is, if you pass away before clearing up the loan, the proceeds from the life insurance will be used to pay the loan instead of it being paid out to the nominee. The assignment will be invalid the moment the loan is fully repaid.

An absolute assignment can also be done. This is typically done through a will and is to ensure that the death benefit is paid out to a person that the policyholder wants – even if she/he is not an immediate family member. 

A nomination ensures that the benefits of the insurance policy are delivered according to the insured’s wishes. Therefore, make sure that you have added the right nominee to your policy. Do you know there 988 million Indians who live without the security of life insurance? Check this out.



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