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Nomination in Insurance

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Nomination in Insurance, All You Need to Know

Having a life insurance policy is essential for ensuring a better future for our dear ones. In case of unfortunate demise of the policyholder, the loved ones receive a pre – defined amount of money from the insurers. In order to keep this process hassle-free, special attention needs to be paid to the ‘nomination’ column. Every insurance policy with death benefits gives the option of nomination. If you are one of those who consider nomination as just another formality instead of taking it as a matter of serious importance, then here are some crucial concepts that you should consider and hopefully they will help you realize the importance that proper nomination requires. 

Whom to Nominate?

The policyholder makes the decision on who shall be the nominee on his/her policy. The nominee could be his/her spouse, children, relatives or friends. Registration of unrelated parties as the nominee is usually not approved by the insurers since it quite often increases their risk, as the concept of insurable interest comes into question. Therefore, while technically you can nominate relatives such as uncles, aunts, nephews etc , it would be difficult to prove insurable interest and the company may refuse if the same is not properly established.

Subsequently the policyholder is required to present the following information to the insurer regarding the nominee — full name, address and age as mentioned in his/her official documents along with the details of relationship between the policyholder and nominee. 

The insured can even opt for multiple nominations wherein the sum assured is divided among all the nominees depending upon the break up percentage decided by the policyholder.

The policyholder would need to provide an appointee if the nominee is yet to be 18 years of age. This is because a minor is not considered eligible to handle the claim amount or deal with documents and contracts.

Provisions to Change the Nominee

There are provisions to change the nominee during the policy term because the nominee is only required in case of demise of the insured. The simple process requires the policyholder to fill a form mentioning the name and information of the new nominee. The insured is also required to present the last valid nomination form when making the change. It is essential for the policyholder to have a written acknowledgment from the insurer after the form/application is filled. The latest nominee will supersede all the old ones. One can perform the process of changing the nominee any number of times during the policy tenure.

Change of nominee is mandatory in a scenario where the nominee dies before the insured and thus the proposer needs to create fresh nominations.

What if One Makes No Nominations in the Policy

In case your policy fails to have a nominee, you need not worry, as the sum assured will be discharged according to the following rules -

The insurance company might dispatch the claim amount to Class I legal heir which includes- insured’s spouse, son, daughter and mother.

In case of a Will, the process is followed according to the Indian Succession Act, 1925 where the claim amount is distributed according to what has been stated in the Will. A succession certificate from the court will be required, to have a clarification on whom to handover the claim amount.

Whenever there is more than one legal heir, insurer intents are to safeguard their interest in scenarios of dispute on settlement of claim. For this, the insurer shall ask for an indemnity bond, joint discharge statement and waiver of legal evidence.

Common Nomination Mistakes

Here are a few common mistakes people make while appointing a nominee on their insurance policy.

Not informing the nominee - The first and most common mistake committed by a policyholder is not informing the nominee about his/ her nomination and the whereabouts of the policy documents. Generally the insured is reluctant to inform the nominee out of a feeling of some insecurity or might ignore the need of keeping him informed. But this will deprive them of the financial support they would require in the future in case of the unfortunate event of the policy holders death.

Not updating nominee details - Another issue is not revising / updating the details of the nominee periodically like his address, if any change in name or in a tragic scenario where the nominee does not survive. In such a situation you are not left with a backup. The policyholder has the right to change the nominee or the details n-number of times during the policy term just by filing the required form. 

Appointing a nominee under 18 without appointee – Prefer a major person instead of a minor so that one does not require having any appointee in such a case. If there are circumstances where it is compulsory to mention a minor as a nominee then it is advised to offer genuine and complete details of the appointee which includes his / her name, address, relationship with nominee etc. And the appointee is in charge of the minor until he/ she turns 18.

Appointing Just One Nominee - Generally while entering details in the policy form, many of us mention just one nominee even after having more names in mind. This might be because of hurry or ignorance of the fact that nobody knows the future. God forbid if the nominee dies before the insured and the column is left unchanged in the policy documents, then there are numerous reasons which can create unnecessary delays in the distribution of the sum assured at the time of demise of the insured. Thus, a policyholder is recommended to mention more than one name in the nominee column with some defined percentage for each one. Remember to enter genuine details like full name, address and relationships with the insured.

Having Wrong Notions About Nominee Rights

Most of the people have a preconceived notion that a nominee has absolute rights. This is not true. If the nominee and the person to whom proceedings are bequeathed in a Will are not same, then a priority is given to the provisions of the Will over the rights of the nominee. In case a policyholder wants to give absolute rights to his/her nominee, he needs to prepare a Will and mention the beneficiaries thereof. It’s better to be cautious and have clarity on these matters in advance to assure financial protection of your loved ones.

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