In a life insurance policy, the policyholder nominates a person to whom the insurer must pay the policy proceeds in the event of his/her demise – this person is called the nominee. Although it is not mandatory to register a nominee, one cannot overlook the importance of life insurance nominee as it prevents disputes and facilitates quicker claims processing, ensuring the beneficiary receives the death benefits without hassles.
A nominee is usually registered in the proposal form while purchasing life insurance policy itself. However, it is possible to register a nominee at any time during the policy tenure.
A nominee can be anyone trustworthy and close to the policyholder – parents, spouse, children, friends, and relatives. To register, the insurer must be given the nominee details like full name as in official documents, age, address, and relationship between the policyholder and the nominee.
Nominating unrelated parties, i.e. those without an insurable interest in the insured’s life increases the risk for the insurer. Insurance companies therefore avoid accepting unrelated parties as nominees.
If the nominee is a minor, the policyholder has to assign an appointee or custodian. This is because minors are legally not considered competent to enter a contract, rendering them ineligible to receive claims directly. Should the need arise, the claim amount is discharged to the appointee until the (minor) nominee turns 18.
Having successive or multiple nominations is also permissible. Successive nomination means successive nominees. For instance, if there are three successive nominees, X, Y and Z - the claim proceeds will first be paid to nominee X; failing him, the insurer will call upon nominee Y; failing Y, nominee Z will be entitled to receive the policy benefits, and so on.
Multiple nomination means the sum assured will be divided among multiple nominees.
When taking life insurance, it is good to appoint one nominee as the rightful person to receive the claim benefits on behalf of the deceased insured’s surviving dependents. Despite multiple nominees, insurers prefer handing over the full claim amount to just one of the nominees. For this, all other nominees need to give their consent. As far as possible, it is better to avoid multiple nominations since this could end up in a legal dispute.
A nominee is needed in the event of the insured’s death. Therefore, if the nominee passes away before the insured during the policy term, the proposer needs to make a fresh nomination. One cannot ignore the importance of a life insurance nominee.
Nominations can be modified by providing the new nominee’s details in a simple form. The last valid nomination form needs to be presented while requesting these changes. Nominee modification is permitted any number of times during the policy tenure. The latest nomination made will supersede all previously made nominations.
After filing the application for a change in nomination, it is necessary to get a written acknowledgement from the insurance company confirming the same.
A new segment recently created in the Insurance Act is ‘Beneficial nominee’ – this includes the policyholder’s immediate relatives only. According to this, if the insured mentions his spouse, parents, or children as nominees in a policy, they automatically become beneficial owners of the claim benefits. This new clause also allows policyholders the flexibility to name various nominees and their exact contribution in the policy proceeds.
Earlier, life insurance companies in India could hand over the claim proceeds to the nominee, after which the other rightful legal heir could claim the benefits from the nominee. Now however, if the legal heir claims the benefits, the insurer gives the benefits only to the beneficial nominees.
The primary reason for disputes is other legal heirs demanding their individual rights over the insurance policy proceeds. It is therefore advisable to understand the importance of life insurance “beneficial nominee” and appoint one to eliminate such kind of friction.
The beneficial or ‘collector’ nominee functions as a trustee who is accountable to all other legal heirs for the benefits they are entitled to under the life insurance policy.
Insurers always insist on being given complete details of the nominee and his/her relationship with the policyholder. The thumb rule of nomination is that the nominee should ideally be a close relative who can be relied upon to tend to the deceased’s family’s immediate needs after his/her death.
In absence of a nomination, the insurance company will ask the claimant for a succession certificate, issued by the court of law. However, this procedure is tedious and it can be avoided by ensuring that the nomination is registered at the proposal stage itself. Absence of a valid nomination defeats the objective of offering immediate relief to the insured’s family members in case of his/her untimely death.
The importance of life insurance nominee cannot be understated as a clear nomination gives an undisputed and legal discharge to the insurance company to settle the claim amicably. Since life insurance serves as a financial shield for the policyholder’s family upon his/her death, it must be ensured that complete and true details concerning the nomination are provided at the proposal stage itself.