Nomination in life insurance is not a mere formality. It is crucial to make the disbursal process hassle-free and ensure the future of loved ones in case of unfortunate demise of the policyholder.
Most people think that nomination in life insurance is just another formality and do not take it seriously. However, it is earnestly important to consider proper nomination. Here are crucial facts to help you understand better:
What is nomination in an insurance policy?
A nominee is a person selected by the policyholder to receive the policy benefits in case of unfortunate demise of the insured, thus giving a valid discharge of the insurer on settlement of a claim under a life insurance policy.
Who can you appoint as a nominee?
The policyholder can choose who he wants the policy benefits to be given to, in case of his or her demise during the tenure. As a general rule, the nominee appointed should be the policyholder’s immediate family, which includes, spouse, dependent parents or dependent children (legal heirs).
Registration of unrelated parties, such as, your friends or relatives, as nominees is not generally approved by the insurance companies, as it is likely to increase the risk since no insurable interest exists as a beneficiary in case of unrelated parties, which would result in claim rejection. Furthermore, it can lead to confusion, in light of the fact that claim could be raised by both the appointed nominee and legal heir(s).
To clear the confusion further and put an end to the dispute factor, a ‘beneficial nominee’ category was introduced in the revised Insurance (Amendment) Act, 2015 (Section 39). As per this act, only the immediate family member(s) of the policyholder can be appointed as nominee(s), who will be referred to as the ‘beneficial nominee(s)’ and will automatically become the rightful owner(s) of the policy benefits. Hence, the pre-defined death benefit amount will only be paid to the beneficial nominees, and not to any other party, be it a friend, relative or legal heir, irrespective of any claims.
Subsequently, the policyholder must clearly provide the following information of the nominee:
- Full Name and age (as mentioned in the nominee’s official documents)
- Complete Address
- Details of the relationship between the nominee and policyholder
In case you choose a nominee who is below the age of 18 years, then it is important to assign a custodian. In such cases, the claim amount will be disbursed to the custodian for guardianship until the minor turns major.
You have the freedom to choose more than one nominees for your life insurance policy. In such case, you will have to pre-define the break-up percentage of the claim for each nominee, and the sum assured will be disbursed accordingly.
Provision to Change the Nominee
You can change the nominee as many times as you wish; all you need to do is fill up a form providing the new nominee’s full name, age, address and your relation with him/her. You must also present the last valid nomination form to the insurer. The insurance company will always consider the latest nominee over any other previous ones.
Important Note: It is mandatory to make a fresh nomination in case the nominee expires before the policyholder.
In case, you fail to provide a nominee, the sum assured will be disbursed as per the following rules:
- The claim amount will be distributed according to the statement provided in the will, as per the Indian Succession Act, 1925.
- In case there is no will, the claim amount will be disbursed to Class I Legal heir of the policyholder.
Deciding to get a life insurance is only the first step towards securing the future of your loved ones. To ensure complete responsibility, you need to pay special attention to the nomination column in your life insurance policy, so that your loved ones can receive the death benefits without any added stress or hassle in case of an unfortunate event.