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When you buy an insurance policy, irrespective of its nature, choosing a nominee or a beneficiary is important. The terms “nominee” and “beneficiary” are generally used synonymously but are 2 different concepts. They have different meanings and roles and are entitled to different benefits. As the policyholder, you need to understand the difference between the two, as your hard-earned and saved money will go to your loved ones in your absence.
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Commonly in insurance, a nominee or beneficiary is chosen to receive the benefits or payout from a term life insurance when the policyholder passes away. For example, Rahul has a term policy worth ₹50 lakh. He designates his wife, Priya, as the nominee. If Rahul were to pass away unexpectedly, the insurance company would provide Priya a ₹50 lakh payout. This designation ensures that Priya receives the financial support to manage expenses, take care of their family, and maintain her standard of living without facing legal complications or disputes.
A nominee, also known sometimes as a beneficiary, is the person who is entitled to receive the sum assured as per the terms of the policy in the event of the policyholder's death. In other words, nomination refers to selecting an individual to receive your policy's death benefits.
A beneficiary is the person who will receive the insurance policy payout and other benefits, such as income benefits in the event of the policyholder's death. Unlike a nominee, a beneficiary has legal rights to the policy’s proceeds, and their claim is treated as a financial transfer of the benefits per the insurance contract's terms.
To answer, is nominee and beneficiary same in term insurance, the terms “nominee” and “beneficiary” often coexist, yet there are differences between the two in terms of benefits and claims process. We understand the difference as follows:
| Parameters | Nominee | Beneficiary |
| Definition | A person appointed to receive the sum assured amount on behalf of the deceased. | A person legally entitled to receive benefits from a policy. |
| Role | Responsible for receiving the sum assured amount and distributing it among the legal heirs in accordance to the will of the policyholder. | Directly entitled to receive benefits and sum assured from the policy with fewer obligations than a nominee. |
| Appointment Process | Appointed by the policyholder and stated in the documents of the policy. | Appointed by the policyholder and stated in the documents of the will of the policyholder. |
| Appointed For | Appointed generally for bank accounts, investments and properties. | Appointed for insurance policies, wills and retirement plans. |
| Distribution Rights | The role of the nominee is not passed to the nominee-heir. Only the original policyholder’s instructions will be considered. | There can be secondary beneficiaries to ensure a smooth transfer in the absence of primary beneficiary. |
Your life insurance policy allows you to have a nominee falling into the following categories :
Legal heirs: One can nominate their legal heirs such as spouse or children so that they receive the sum assured amount that will help them secure their financial future
Other members of family: Your parents, siblings, or other family members can be nominated as nominees. They can receive and manage the insured sum for the person you aim to protect financially.
Extended family and friends: It is possible to make your extended family and friends nominees. However sometimes approval from the insurance company might be required for the same.
Term Plans
Choosing the right nominee is an important task since these individual(s) receive the benefit after your death. The nominee could be your family or any person other than your family. We explore the different types of nominees in this section:
Beneficial Nominee
Under the Insurance Laws (Amendment) Act, 2015, designating immediate family members such as your spouse, children, or parents as nominees for your insurance plan ensures they prioritise receiving the claim amount ahead of other legal heirs.
These nominees are termed beneficial, granting them exclusive entitlement to the death benefit as prescribed by law.
Minor Nominee
Many times, parents appoint their children to be the nominees of their policies; however, it is not certain that the parent dies when the child is above 18 years of age. Being 18 makes the child a minor under the eyes of the law.
Therefore for such cases, parents have to appoint a guardian for the child, who will receive the sum assured on their behalf of.
The day the child turns 18, they are legally entitled to receive the sum assured amount from their guardian.
Not a family member nominee
Policyholders are also allowed to appoint non-family members as nominees.
The reason could be that the person is either unmarried or does not have close relatives or for any other reason.
If you choose a non-family member as a nominee, they will receive the death benefit as a custodian, while your legal heir(s) retain the right to claim the benefit under the policy.
Multiple Nominees
One can nominate more than one individual. Most people choose this option to divide the benefits among all family members.The policyholder can also decide what proportion of the payout will be given to which nominee.
One can fix the proportion of the benefits also.
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One can see that choosing the right nominee is of utmost importance. A nominee is a person who will receive the sum assured from your policy after your demise. One should be mindful as to whom they are making a nominee for their policy. Nomination thus becomes a critical component of financial planning, ensuring that the benefits reach the intended persons. It is important to ensure the well-being of your loved ones after your demise.
Note: You should also check the term insurance benefits if you are planning to purchase the term insurance plan.
You may also like to read about term insurance
†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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