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In the event of sudden death of the policyholder, a life insurance policy will offer a lump sum payment of the sum assured to your family or nominee. Policyholders can nominate a person to receive death benefits during the policy term. As a rule, spouses, children, or parents are usually designated to be nominees.
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Previously, the true status of nominees was misunderstood due to a lack of regulatory clarity as legal heirs (other than nominees) used to make claims on the money as well. As a result, a concept of Beneficial Nominee was established in 2015 to overcome this situation and ensure that the insurance money flows to the true and intended beneficiaries.
Term Plans
The policyholder chooses the nominee. When you sign up for online term insurance, you must also submit the information for your nominee who may or may not be a family member. For example, you can nominate your parents, spouse, or children.
In some situations, relatives such as an uncle or aunt are referred to as policy relatives. If you choose a distant cousin or acquaintance, it is critical to demonstrate the interest of the concerned person in making good use of the assured sum. The company may reject your application if you fail to satisfy the insurer about the interest of your distant relative.
There is usually a misunderstanding between the beneficiary and the nominee when selecting a life insurance plan. To obtain the death benefit, the policyholder names a nominee when enrolling for term insurance.
On the other hand, a beneficiary is a person who is authorized to manage the individual's financial assets or aspects. For example, a legal heir or a financial institution like a bank can be the beneficiary.
Note: Now that you know that what is the Difference Between Nominee and Beneficiary, you should also get to know about what is term insurance to buy a term plan for your loved ones.
The regulations for life insurance nominees have been established to assist insurance applicants in making the best decision possible. Since it is simple and cost-effective, an online term plan is a good option to apply for the policy and designate a nominee.
The points below will help you determine the nominee for your life insurance policy:
Beneficial nominees: It is usual to nominate a family member like your spouse, children, or parents. If this is the case, the declared family member will beneficially own the death claim. Other legal heirs will not be considered for death benefits as per the rules.
Minor nominees: You can also make your child a nominee. If your child is a minor (under 18 years), the lump sum payment may be too much for them to bear. You must name a caretaker or an appointee to collect the death benefit in this scenario.
Multiple nominees: For your term policy, you have the option of naming multiple nominees. The insurance company will divide the sum assured as per your given information. If one of the nominees is a minor, you can choose someone to accept the money on the child's behalf.
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If you pay premiums on time, you can replace the nominees in your term insurance plan anytime during the policy term. If you buy a term plan online, you can alter the nominee in the same way by filling out the relevant forms and submitting verification documents.
If you are replacing the nominee on your term policy, make sure to update all pertinent information to avoid errors during the claim process. You can also notify the insurance company and make the appropriate changes if the nominee dies during the policy term.
Note: It is suggested to calculate the term plan premium on the term insurance calculator online tool by Policybazaar before buying.
There are no special term insurance nominee rules. However, a new modification was introduced to the Insurance Laws (Amendment) Act known as a ‘Beneficial Nominee’ that covers your parents, spouse, or children. The benefit amount will be paid to them if listed as beneficiaries in your policy.
Even if there are other legal heirs, the insurance proceeds will not be distributed. This is done to avoid any potential family feuds between the nominee and their legal heirs.
If the policyholder wants, they may name multiple nominees to split the benefits in whatever proportion they deem fit. The sum assured will be distributed among the nominees in the event of the policyholder's death, according to the specified share ratio.
You must provide the following information regarding nominees and attach supporting documentation to record your preference when filling out the policy document:
Name
Age
Address
Policyholder and the nominee's relationship
The proceeds go directly to the legal heir(s) like a spouse, son, father, or mother, if you fail to provide nominee details in the policy application or if the documents are not completed.
Policyholders must avoid the following mistakes in the procedure of choosing the nominee:
Nominee not being aware of the policy - The policyholder should keep the nominee informed about the policy and provide relevant details. If the nominee is uninformed, it is highly likely that the insurance claim is never made.
Details not updated - The policyholder fails to keep the nominee's information up to date. If the nominee passes away during the term, the replacement nominee should be registered as soon as possible. The insured can change the nominee at any time wherein the number of changes is not limited.
Minor nominee - The insurer chooses a minor nominee (under 18) and fails to give the appointee's information. If the policyholder must appoint a minor as nominee, they must also have an appointee. The appointee's information should be complete and validated by the insured. The minor will not get the financial benefit if the policyholder fails to provide the appointee information. The financial benefit is given to the appointee until the minor reaches the age of 18.
Single nominee appointment - The policyholder fails to give more than one nominee on the nomination papers, resulting in the appointment of only one nominee. If the nominee suffers misfortune and the policyholder fails to amend the nomination form, the claim will be processed but the death benefit will not be transferred. Following that, the insurance firm will identify the legal heir and complete the relevant legal processes. Under certain scenarios, the death benefits can also remain unclaimed.
Lack of knowledge of nominee's rights - Nominees feel they have total rights on the death claim because they are unaware of their rights. If the nominee's information differs from the person listed in the will, the will takes precedence. If the policyholder wishes to give the nominee absolute powers, the policyholder should write a will and include the nominee in it.
Following are the advantages of the nomination facility in a term insurance policy:
Serves an insurance purpose
Nomination of any relative or person
Nomination not limited to changes
Death benefit distribution
Cancellation of nominees
The nomination facility safeguards both the insured and the insurer's interests. The death benefit will be paid out according to the information provided on the nomination form. If the nominee's information like name and address changes, the information should be updated as soon as possible.
Note: Check out the best term insurance plan in India and choose one that suits your requirements.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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