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When you buy a term insurance policy, you do it to protect your loved ones financially in case something happens to you. But how does the insurance company know who should receive the money (the sum assured) after your passing? That’s where nomination comes into play. Nomination allows you to choose the person or people who will receive the insurance payout when you’re no longer there.
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Nomination in term insurance refers to the process of selecting one or more individuals (called nominees) who will receive the insurance payout if the policyholder passes away during the policy term. These nominees can be family members, friends, or anyone else the policyholder chooses. The purpose of nominating someone is to ensure that the life insurance benefit goes directly to the person or people you want to support financially.
For example, if you nominate your spouse as your nominee, the insurance company will pay the sum assured to your spouse if you pass away during the policy term.
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Nomination is an important aspect of life insurance because it ensures that the payout reaches the right person without unnecessary legal complications. Here’s why it matters:
Ensures Financial Security for Loved Ones: By nominating someone, you can rest assured that the money will go to the person you intend to protect financially.
Avoids Legal Hassles: Without a nomination, your family may have to go through legal procedures to avail term insurance claim, which can cause delays and stress.
Control Over the Distribution: You can nominate more than one person and even specify the share of the sum assured each nominee should receive.
Peace of Mind: It provides peace of mind knowing that the sum assured will go directly to your nominees and help them in their time of need.
You can nominate any person to receive the death benefit under your term insurance policy. Typically, here is who you should nominate in term insurance plans:
Spouse
Children
Parents
Siblings
While most people nominate family members, it’s not mandatory. You can choose any person you trust, even if they’re not a relative. However, it is wise to nominate someone who would genuinely need financial support in case of your death.
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Nomination is a simple process and can usually be done when purchasing the term insurance policy. Here’s how you can choose to nominate someone in term insurance:
At the time of Policy Purchase: When filling out the application form, you’ll be asked to provide the nominee’s details, including their name, relationship to you, age, and sometimes contact information.
Updating or Changing Nomination: If your circumstances change (e.g., after marriage or having children), you can update your nominee later. Most life insurance companies allow you to change the nominee by submitting a written request or updating it through their online portal.
Multiple Nominees: You can nominate more than one person and divide the sum assured among them. For instance, you could give 50% to your spouse and 50% to your child.
Minor Nominee: If your nominee is a minor (under 18 years old), you’ll need to appoint a legal guardian who will manage the money until the nominee reaches adulthood.
Change of Nomination: You can change your nominee anytime during the policy term. For example, if you initially nominated a parent and later want to nominate your spouse, you can do so by informing the insurer.
Nominee’s Role: The nominee’s role is to receive the payout. They are not entitled to the money for their own use unless the policyholder intended it. The death benefit should be used for the benefit of dependents, such as children or other family members, according to the policyholder’s wishes.
Legal Rights of the Nominee: A nominee doesn’t automatically become the legal heir. The insurance money must be used according to the will of the deceased or, if there’s no will, according to inheritance laws. The nominee acts as a trustee of the payout for the legal heirs.
Let us take a look at the nomination vs beneficiary difference:
Nomination:
Person appointed to receive the payout on behalf of legal heirs.
May not have legal rights to the money unless also a legal heir.
Acts as a trustee for the sum assured.
Can be changed at any time by the policyholder.
Beneficiary:
Legally entitled to receive the death benefit directly.
Has a legal claim to the insurance payout.
Can be multiple beneficiaries with specified shares.
Typically named in legal documents like a will.
If you do not nominate anyone in your term insurance policy and you pass away, the payout will not automatically go to your family. Instead, they will need to follow a legal process to claim the money. This could involve obtaining a legal heir certificate or going through probate, which can delay access to the funds. In worst cases, it could even lead to disputes among family members.
Nomination is a crucial aspect of term insurance that ensures the benefits of your policy reach the right people without any complications. By nominating one or more individuals, you provide financial security to those you care about most. Whether you choose to nominate your spouse, children, parents, or anyone else, make sure to update your nomination if your circumstances change. Always inform your insurance company in writing if you want to modify your nominee. With proper nomination, you can ensure that your loved ones are taken care of, and the policy serves its true purpose of providing financial protection when it's needed most.
†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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