Since only an immediate family member can be a beneficial nominee, choosing a close relative to receive your policy benefits will ease your family's financial burden. Moreover, it eliminates the chances of legal disputes about the claim amount when you choose a legal heir as your nominee.
Everything about the Nominee in Life Insurance
One of the most effective forms of life insurance is term insurance, providing financial support to your loved ones at affordable rates. It provides a significant assured sum at low premium rates. The benefit amount in the case of the demise of an insured individual during the term of the insurance policy goes to a nominee.
However, in whole life insurance, the insured gets benefits for their lifetime, given they have paid the premiums on time. Since a nominee is an integral part of an insurance policy, every policyholder must understand the concept and rules for nominees in life insurance policies.
What Is a Nominee in Life Insurance Policy?
An insured person chooses someone of their preference to receive life insurance benefits in case of their demise. The person they nominate or choose is known as a nominee in life insurance. It can be anyone the policy buyer wishes to protect in the event of their untimely demise.
Section 39 of the Insurance Act 1938 clearly states the rights of the nominee in a life insurance policy.
What Are the Eligibility Rules for Nominees in Life Insurance?
As a policyholder, you can choose anyone to be the nominee for your life insurance. However, in the case of a non-family member, you have to prove an insurable interest. This means you have to show that the nominee will suffer financial loss in your absence.
The following are the rules for choosing eligible people for life insurance policy nomination:
- You can appoint your wife and children, who are your legal heir, as your nominees.
- Members of your immediate family, such as your siblings and parents, are eligible to be your nominees. After receiving the insured sum, they can hand it over to another person of your preference.
- You may also appoint people from your extended family, such as your relatives, cousins and even friends, as your insurance nominee. However, you must check with your insurance provider and get their approval.
What Is the Role of a Nominee in Life Insurance?
The goal of life insurance is to give financial benefits to the near and dear ones of the policyholder in their absence. Selecting a nominee ensures that none other than the people you have specifically chosen receives financial benefits if you are no more.
In the absence of the policyholder, a nominee claim policy benefits by submitting the following documents to the insurer:
- Identity proof
- Claim intimation letter
- The policyholder's death certificate
- Post-mortem or hospital record in case of an unnatural death
This list might vary across insurance providers.
There are various categories of nominees for a life insurance policy.
What Are the Types of Nominees?
When you are researching nominees, it is important to know about the different types of nominees that there are. This will aid you in selecting someone to receive the benefits of your policy in the absence of a legal heir or related scenarios.
Following are the 5 types of nominees:
1. Beneficial nomineesA beneficial nominee is a member of your immediate family. A parent, child or spouse is usually appointed as a beneficial nominee, and they can receive death benefits with minimum disputes.
2. Non-family nomineesThe objective of choosing a nominee is contradictory to the concept of non-family nominees. However, you can select a friend or relative as your policy nominee after getting approval from your insurance company.
3. Minor nomineesWhen you choose someone, presumably your legal heir, who is under the age of 18 to be your nominee, they are called minor nominees. However, in such scenarios, you must select an adult as an appointee who can receive the policy claim amount on behalf of the minor.
4. Successive nomineesYou can choose multiple people to be your nominees in case of a successive nominee scenario. In this case, the benefits of your policy will go to the first nominee of the policy, failing which, it will pass on to the second nominee and so on.
5. Multiple nominees
Insurance companies also give you the option to nominate multiple people to receive the benefits of your policy. You can select multiple nominees, all of whom will receive an equal amount of the death benefit.
Since there are so many different types of nominees, it can baffle you. However, there are reasons why selecting a nominee is an essential part of buying an insurance policy.
What Are the Advantages of Having a Nominee in Life Insurance Policy?
1. Secures Your Loved OnesThe primary motive of term insurance is to make sure that you can financially aid your loved ones in case of your unexpected demise during the policy term. Choosing a nominee is a wise decision since it will give you the liberty to appoint someone to take care of your family in your absence.
2. Ensures Your Money Ends Up in the Right HandsThere was a lack of clarity regarding who should receive monetary benefits in case of the demise of the insured before 2015. This led to confusion, and both legal heirs and nominees could claim the money. However, now only the person you decide to financially secure will receive the claim amount, even if they are not your legal heir.
How to Choose a Nominee?
Since a nominee will be responsible for claiming the policy sum after your demise, you should select someone trustworthy. A nominee can be anyone who you think will be able to take responsibility for the well-being of your family in your absence.
Moreover, insurance companies also check whether the person you are nominating will actually suffer losses in case of your demise. In other words, they check whether there is an insurable interest for the nominee. In the case of non-family members, proving insurable interest is harder since many times there are chances of fraud. Thus, it requires many additional documents and verification procedures.
Thus, make sure to check with your life insurance provider about who you can select as your life insurance nominee.
Is Changing the Nominee Possible?
Insurance companies provide you with the freedom to change your nominees multiple times. You can do this by updating the personal information of your new nominee to the insurance provider. You can select or modify your nominees anytime during the beginning or within the duration of a term policy.
Usually, for this process, you need to take the approval of your insurance provider and submit the last approved nominee documents to avoid any confusion. In case of your nominee's demise before the completion of the policy tenure, you have to select someone else.
What Documents Are Required for Assigning a Nominee?
The process of assigning a nominee is fairly simple since you don't need to submit any credentials of the nominee. You have to fill up a form with the details of a nominee's name, age and relation with you and get approval from your insurance provider.
There are certain things that you should keep in mind that will help to justify the objective of your appointing a nominee.
What Are the Things to Remember Before Selecting a Nominee?
You should keep in mind the following 3 things before choosing people to receive your insurance benefits:
- Make sure you choose someone who you can trust with your money and the responsibilities of your loved ones. It is also better to choose a spouse or relative instead of someone completely unrelated to you.
- It is wise to ensure your nominee is aware of the process of claim settlement of the insurer and understands their duties as a nominee.
- Remember that you can cancel or change your nominees during the policy tenure. You can do this by informing your insurance company in advance.
There are also certain mistakes that you should avoid making in the process of nomination.
What Are the Things to Avoid While Selecting a Nominee?
1. Single nominationYou may want to select only one nominee for your insurance policy because you do not see it fit to select more than one person for nomination. However, this can complicate the process of an insurance claim in case your nominee passes away, and you forget to update the details of another nominee.
2. Not Updating Details of NomineeIt is your responsibility as a policyholder to update the name, address and other relevant details of your nominee from time to time. Not updating the details on time can create issues during the claim of the insurance policy.
What Are the Reasons for Rejection of Life Insurance Claims?
Although you can choose anyone as the nominee of your insurance, not selecting members of your immediate family is unfamiliar. In such cases, you have to provide valid reasons for your choice of nominee to your insurer. Failing to provide a satisfactory reason for insuring a non-family member can result in the rejection of your application for a nominee.
The other reasons for the rejection of the life insurance claim are:
- If the policyholder provides false information in the application form.
- In case the insurance buyer does not disclose medical history.
- Insurance companies can reject claims of nominees if the policy buyer does not pay the premiums on time.
Since nominees are an integral part of a term insurance policy, it is important to ensure that they are aware of the rules for nominees in life insurance. Sync between you and your nominees will help you eliminate the common mistakes and select the ideal person to receive your insurance benefits.
FAQs About Nominees in Life Insurance
Since non-family members cannot be beneficial nominees, a policyholder needs to assign the proceeds from insurance to the non-family member by a will. This is to make sure that the nominee receives the benefits without any legal complications.
The most vital point about selecting a minor as your insurance nominee is appointing a custodian. If you don’t do this, the insurer will not take the claim any further which will result in the minor receiving no financial benefit at all.
Many times insurers refuse to let you choose non-family members as nominees in life insurance because it is hard to establish insurable interest. Moreover, there are often legal issues that arise when you nominate a non-family member for insurance instead of a legal heir.
Other Important Features of Life Insurance
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
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