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What is the Meaning of Nominee in Insurance & Who Can Be Your Nominee?
Insurance policy secures the financial future of a policyholder and their family. However, in case of unforeseen demise during a policy period, who will receive the death benefits? To accomplish this purpose, nominees in insurance play a vital role in processing of policy claims.
Therefore, to help you authorise the right person as a nominee, we will focus on what a nominee name is in insurance and its importance in detail.
Table of Contents
What is Nominee in Insurance?
Nominee in insurance means nominating a person to receive an insured amount if the policyholder passes away during their policy period. According to Section 39 of the Insurance Act of 1938, you can nominate one or more family members or relatives as nominees. Moreover, you can change these names multiple times by updating the insurance company about the nominee's personal information.
If you want a non-family member as your nominee, you can always appoint someone. It can be anyone, a friend or a distant relative.
What is the Importance of Nominee in Insurance?
The need to appoint a nominee ensures that only your nominated person receives policy benefits in your absence and no one else. Due to the lack of regulatory clarity before 2015, both legal heirs and nominees used to claim death benefits, which created confusion.
Regardless, your nominee will get the claim without moving to court even if they are not your legal heir. This ensures that the objective of this policy is not defeated even after your death.
Now that you know who is a nominee in insurance, you must be wondering what the role of a nominee in claiming insurance is. In the absence of a policyholder, a nominee has to submit requisite documents like:
- Own identity proof.
- Death certificate of the policyholder.
- Claim intimation letter.
- Post-mortem report or hospital record for unnatural death.
Who is Eligible to be Your Nominee in General Insurance?
The first thing to remember while opting for a nominee is that they should be of legal age and of sound mind. Other than these two factors, the nominee has to fulfil the following criteria:
- Has to be a Legal Heir: Enlists spouse or children.
- Has to be an Immediate Family Member: Enlists parents, siblings, and or other family members.
- Has to be an Extended Family Member: Enlists relatives, cousins, friends or relatives.
Who is Eligible to be Your Nominee in Life Insurance?
Following are the types of relatives who can be a nominee in life insurance:
- Legal heirs – Your legal heirs, like children or wives, can be your nominee.
- Immediate family member – Your parents, siblings, or family members are suitable as your nominee. They can receive and hand over your insured sum to the person whose financial future you want to secure.
- Extended family member – You can nominate your cousin, relative or friend as a nominee. However, you have to get the approval of your insurance company to appoint such a nominee.
What are the Different Types of Nominees?
It is essential to know the types of nominees while researching who is a nominee in insurance. This will help you select a nominee for your policy if you have no legal heir. Following are the details of the five types of nominees -
1. Beneficial Nominees
If the nominee is your immediate family member, they are a Beneficial Nominee. They can become a beneficial owner of this policy. Apart from immediate family members, only some people can be beneficial nominees.
2. Minor Nominees
A legal heir whose age is below 18 years is a minor nominee. A custodian must be appointed as an appointee to receive the insured amount on behalf of a minor nominee. If the policyholder expires during the policy duration when the nominee is yet to be an adult, then an appointee will handle the claim amount.
3. Non-family Nominees
Non-family nominees contradict the objective of introducing the concept of a nominee. However, with your insurance company's approval, you can add a relative or friend as a nominee of your policy.
4. Successive Nominees
In this case, a policyholder can assign successive nominees, i.e. multiple numbers of nominees. An insurance company will first pay benefits to the first nominee. If this fails, your insurer will give it to the second nominee, who, on failing, will successively carry on this process.
5. Multiple Nominees
More than one nominee can be nominated and will receive an equal amount as a death benefit.
What is the Difference Between Nominee and Beneficiary?
The difference between a nominee and a beneficiary is discussed based on the criteria in the table below:
How to Choose a Nominee?
It is evident now who can be a nominee in insurance. However, electing a nominee is a valid question if you do not nominate a legal heir or immediate family member. Therefore, in such a case:
- You have to establish the insurance interest to the policy provider. The nominee's approval will only be accepted if you give a proper reason, as insuring a non-family member sounds unfamiliar.
- When making a policy, you can assign a nominee in insurance by stating details in your application form. Later on, at any point in time, you can assign or modify nominees.
- You can modify and submit a nominee form by filling out a nominee form to the insurance company. You must also submit the last approved nominee form to do this. Always take an approval letter from your insurance company to make sure everything is clear.
- In case nominees expire before the duration of the policy is completed, you have to reassign someone else.
If you are still wondering who can be a term insurance or life insurance nominee, select your trustworthy. An insurance policy is for the security of your family; hence, select the nominee in insurance prudently.
Benefits of Adding a Nominee to an Insurance Policy
The benefits of adding a nominee to an Insurance policy are mentioned in the following section:
- Legal Protection: A nominee can dismiss all potential disputes related to the insurance policy, and the nominee can claim the benefits without difficulty. If an immediate family member is a nominee, they can directly claim the benefits over a legal heir without any legal problems.
- Smooth Settlement Process: The delays and complications in disbursing the policy proceedings can be avoided if the policyholder chooses a nominee. However, the nominee should hold proper papers to claim the benefits.
- Ease of Transfer of Assets: Having a nominee in an Insurance policy makes the transfer process easy. The nominee directly receives the insurance proceeds without any court hassle.
- Financial Security: Having a nominee provides extra security when the insurance proceedings are to be received by specific beneficiaries, such as family members.
What if the Nominee is Not Added to the Policy?
Suppose there is no nominee after the policyholder's death. In that case, the policy's benefits are to be transferred to the legal heirs, legal representatives, or the person holding the succession certificate from a competent court. However, if there is a will, the policy's benefits will be divided according to the terms mentioned in the will.
Appointing a nominee is a significant step to ensure the benefits go to the right person. Moreover, it also adds legal security and simple transfer of benefits. So, choose a trustworthy person to be your nominee!
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FAQs about Nominee in Insurance
Is it possible to change the nominee during the maturity of the plan?
No, the nominee cannot be changed during the plan's maturity as that does not serve the purpose. You can assign or modify nominees anytime during the starting or within the policy tenure.
Is it necessary to submit any documents for assigning nominees?
To assign a nominee, you have to give the nominee's full name, relation, and age. To do this, you have to fill up a form and get approval from the insurance company. You don't have to submit any credential of the nominee.
Can nominees be changed after death?
The nominees can be changed only if the nominee has died. The name or details of the nominee cannot be changed after the policyholder has died. After the policyholder's demise, the nominee will enjoy the policy's benefits.
How do you change the nominee details in insurance?
The procedure to change the nominee details in the insurance is very simple. Avail a change of nomination form from the insurer, fill it out and submit it to the insurer. This can be done through both online and offline processes.
Is it necessary for the nominee to be present during claim settlement in a life insurance policy?
The nominee's role is to distribute the death benefits per the terms mentioned. Hence, they don't need to present physically with a life insurance policy during claim settlement. His responsibility ends once the benefits are properly and completely transferred.
What documents are required to appoint a nominee in a life insurance policy?
The following details and documents of the nominee are required to appoint one for the life insurance policy:
- Details: Full name, date of birth, age, address, proof of relationship with the policy buyer.
- ID Proof: Aadhaar card, PAN card, Voter card or Passport.
What happens if a nominee predeceases the policyholder in a life insurance policy?
If the nominee dies before the policyholder, the nomination will be considered null and void, and the policyholder is entitled to choose another nominee. However, the benefits will be transferred to the legal heirs if the nominee expires after the policyholder but before claiming.
What is nomination in insurance?
Nomination in insurance is choosing a beneficiary or nominee who will receive the policy's amount and benefits in case the policyholder dies. The article above mentions the eligible person for choosing a nominee or beneficiary.
What is the rule for nominees?
The rules for selecting nominees in insurance are under the regulations of Section 39 of the Insurance Act 1938. Some of the rules while choosing a nominee include:
- Minor Nominees: For minor nominees, the policyholder must appoint a guardian on behalf of the child.
- Multiple Nominees: In case of multiple nominees, the death benefit will be equally divided.
- Trust: The nominee should be a person of trust and should share a close relationship with the policyholder.
- Review and Update: The policyholder must update and review the nominations.
- Replacement: If the nominee dies, the policyholder must appoint another nominee as soon as possible.
Who cannot be a nominee?
Regarding life insurance, people under 18 cannot be nominees alone. They should have an appointed guardian. Also, the nominee should not be or can not be any trust, corporate body, charity, HUF, etc.
What happens if a nominee dies in insurance?
If the nominee dies before the policyholder, the policyholder must appoint a new nominee as soon as possible. This can be done by approaching and talking with the concerned insurance company online and offline.
Can we change the nominee in insurance?
Yes, the nominee in the insurance can be changed by filling out a simple form, online or offline. This is mainly done when the nominee dies before the policyholder.
Can I make my friend a nominee in term insurance?
Nominee does not necessarily refer to blood relations. If you do not have a family or are unmarried and have close friends, you can appoint a nominee from them as well for your term insurance. It can also be a distant relative.
Can a non-family member be a nominee?
Yes, a non-family member can become a nominee for every kind of life insurance. In this case, a nominee can be a friend, distant relative, or acquaintance. However, while buying the policy, you must state relevant reasons for selecting a non-family member for your life insurance.
How many nominees are allowed to have life insurance?
In the case of life insurance policies, multiple nominees can be appointed, each receiving a specific portion of the death benefit. This is generally seen among family members when the head of the family has appointed multiple nominees in his policy.
What happens if the policyholder and nominee both die?
If, in any circumstance, both the policyholder and the nominee die, the death benefits from the insurance will be paid to the legal heir. However, the legal heirs must prove their relationship with the policyholder by providing relevant documents. The amount will be divided according to the policyholder’s wishes.