Should you have more than one nominee in your term insurance?

In a world full of uncertainty, it is important to ensure that a bright future for your family is certain, and is not left merely to chance. For that, you work hard, try to increase your income, maximize your savings, invest to generate good returns and do everything in your power to provide for your family to the best of your ability.

As long as you live, you ensure that your family does not have to struggle to achieve their dreams, be it for higher education or other milestones of life. However, what if you are not there to provide for your family one day? You surely wouldn’t want to leave their fate hanging in balance should something unfortunate happen someday.

This is where a Term Life Insurance Policy comes in. The COVID pandemic that killed over 6 million people across the world, and over half a million in India alone, has made people realize the importance of having a backup plan. The death of an earning member of the family not only has an emotional impact on other members, but also triggers serious financial insecurities. Hence, it is of paramount importance to be prepared for such events by opting for a Term Insurance Plan that provides a safety net for your family.

What is Term Life Insurance?

A term insurance is the kind of life insurance which provides a huge cover amount (to the family in case of death of policyholder) at a very small premium. For instance, a 30 year old can get Rs 1 crore policy for a monthly premium of Rs 1100-1200 to safeguard their dependents. The payout can be used by the family to meet their day-to-day needs, as well as to pay for major life goals, like education and marriage of the children. When you opt for a term insurance policy, you can decide the amount that has to be given to your survivors in case of your untimely demise.

A term insurance policy not only provides financial security to your family in case of your death, but also provides you with an option to get protection against critical illnesses. By opting for certain riders, you get a financial payout if you are diagnosed with any listed critical illness like cancer, heart attack, kidney failure etc. This way, the cost of treatment or other related costs are taken care of by the cover amount, ensuring that your life goals are not derailed due to such an illness. This cover amount gets paid over and above any health insurance plan that you may be covered under.

Who are the nominees?

Through the nomination process, the policyholder can decide who receives the plan benefits in case of his/her death. The idea is that the entire process is smooth and without any complications. Soon after the claim is filed and processed, the insurance company can simply transfer the amount into the account of the nominee as such directions are clearly mentioned in the policy document by the policyholder. The nominee is usually a dependent family member like the policyholder’s parent(s), spouse, or children. In certain cases, distant relatives like nephews, uncles and aunts can also be named as nominees.

In case the policyholder decides to name his/her minor child as a nominee, then it is important to also assign an appointee because children below 18 years are not eligible to receive the claim benefits directly. The appointee is then responsible for managing the financial benefits till the minor nominee achieves adulthood.

Should you name multiple nominees?

When an earning member of the family dies, there are often multiple dependents left behind. It is often said money can be the root cause of conflicts in families. While it might not be true for all, it is still better to take steps to avoid any such situation. To ensure that the interests of all dependents are protected and there are no disputes within the family later, it is often advisable to name multiple nominees in such scenarios. This way, all the nominees mentioned in the policy can share the financial benefits. Moreover, as a policyholder, you can even choose the percentage in which the benefits would be distributed among the nominees.

It is common for policyholders to appoint a single nominee, in belief that he/she would ensure interests of the entire family. This is particularly the case when the policyholder appoints his/her spouse as the nominee. However, in some rare scenarios, it can also prove to be a costly mistake if the nominee also unfortunately passes away along with the policyholder. This can also get difficult if the payout is needed for more than one dependent. Because of appointing a single nominee in such a scenario, the claim settlement process can end up getting too complicated as the insurer would then find it difficult to identify the legal heir of the insured. In such a case, the survivors would have to go through a complicated and time-consuming legal process to identify the legal heir who would eventually get the policy benefits.

This entire complication, while it may not be avoidable completely, can be avoided to a certain extent by appointing multiple nominees and allocating a specific percentage of sum assured to each of them. In case one of the nominees passes away, his/her share would be distributed proportionally as per the assigned percentage among the other nominees if there is no other conflicting will/legal heir. This ensures that beneficiaries get their share in a hassle-free manner in most of the cases, if not all.

The nomination process is crucial to protect the interests of the insured’s family. However, just appointing one nominee shouldn’t be done by default as many do. It is advisable to appoint more than one nominees or understand basis the dependents in the family and the future needs. Also, one should not stop just there. It is equally important to inform the nominee of the policy and share the policy documents with him/her. Moreover, one should review the policy and the nominee details every year, and inform the insurance company if there is any change.

(By Sajja Praveen Chowdary, Head-Term Life Insurance, Policybazaar.com)