The Importance of Having a Nominee On a Life Insurance Policy

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. 

Eligibility

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.

Modification

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.