Nomination process in case of life insurance

You are buying life insurance to secure the financial life of your dependents. To avoid your financial dependents of any troubles you must ensure that you have bought a cover of the adequate amount, disclosed all the correct details and informed your dependents about you having a term Insurance.

Have you nominated your dependents in your life insurance or you thought that you shall do the same eventually?

What is Nomination?

Nomination is a right given to the life insurance policyholder to appoint a person or persons to receive the benefit under the policy in case it becomes a death claim. Assume if a person who is insured dies, the nominee is entitled to receive the policy proceeds subject to certain conditions.

Meaning of a nominee as per the earlier laws

Earlier, the nominee in your insurance policy would not in actual receive and benefit from the insurance money but was to act as a trustee of the claim amount he or she would receive from the death claim.

Acting as a trustee means that the nominee had to distribute the claim amount as per the legal heir rules or the WILL of the deceased person.

Hence, earlier nomination meant not an ownership of claim amount. This lead to many legal battles between nominees and legal heirs to claim the death claim amount of the insured person.

What is the meaning of Beneficial Nominee in your Life Insurance?

IRDA introduced the concept of Beneficial Nominee.

Now as per the new rules, suppose you nominate your parents (sibling is not included), spouse or children, then they will be considered as the beneficial nominee and the death claim amount will be payable to ONLY them.

Other legal heirs as per the will or otherwise cannot claim the death claim amount. Accordingly, Life Insurance Company will pay the death claim benefit ONLY to the nominees.

Hence, while buying a life insurance, you must have a clarity of mind as to whom do you want the death claim amount to be payable in your absence. The nominee also has the right on the claim money if the policyholder dies after the policy period is over but before receiving the maturity benefited.

Things to keep in mind while assigning your nominee

  • You as the policyholder can declare the nominee at the time of policy application, or at any time later during the term of the policy.
  • You can nominate anyone as a nominee – your spouse, your children, relatives, your friends, unrelated people, anyone. You need to provide details such as full name (as per the nominee’s documents), gender, address, age and the relationship between the nominee and you (if there is one).
  • Suppose you nominated your friend or someone who has no insurable interest in your life, then such non-relative will not be treated as the beneficial nominee. In such a situation, your actual beneficial nominees or legal heirs can prove that he or she is not a beneficial nominee and can get the claim amount from the nominated person.
  • A valid WILL still can negate the rights of beneficial owner and money can be disbursed according to the WILL of the insured.
  • The nominees’ details are generally printed or endorsed on the policy certificate. If such information is not available on policy document, then the nomination is not valid.
  • Change or cancel nomination for INR 100 for each change.

Types of nomination permitted or advised

  • You can also nominate multiple people in a particular ratio, e.g. 40% to person A and 60% to person B.
  • Even successive/alternate nomination in life insurance is possible. This is nothing but the nomination order. e.g. nominate the money to person A. If he is not alive at the time of claim, it can go to person B. If B is not alive as well, it can go to person C. All the names of A, B and C need to be declared upfront at the time of successive nomination in life insurance. This is the best way to nominate and it is highly recommended.

What if One Makes No Nominations in the Policy

  • In case your policy fails to have a nominee, you need not worry, as the sum assured will be discharged according to the following rules -
  • The insurance company might dispatch the claim amount to Class I legal heir which includes- insured’s spouse, son, daughter, and mother.
  • In case of a Will, the process is followed according to the Indian Succession Act, 1925 where the claim amount is distributed according to what has been stated in the Will. A succession certificate from the court will be required, to have a clarification on whom to handover the claim amount.
  • Whenever there is more than one legal heir, insurer intents are to safeguard their interest in scenarios of dispute on settlement of the claim. For this, the insurer shall ask for an indemnity bond, joint discharge statement, and waiver of legal evidence.

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