Who Is A Nominee?
A nominee is a person you can select to receive the death benefit of your term insurance policy. It can be any person of your choice or who is financially dependent on you like family members. The individual can be anyone such as your partner, child, or parent.
You must provide the details of your nominee at the time of purchasing the policy so that the company knows whom to contact in the event of your demise. If you are unable to decide the nominee while buying the policy, you can always choose someone at a later date and inform your insurer of your decision. It must be noted that you can also opt for more than one nominee to distribute the sum assured or life cover.
Advantages of Having A Nominee
Some advantages of nominating a person for a term insurance policy are:
- It simplifies the claim settlement process as the insurer does not need to figure out who is your legal heir if you already have a nominee. This also ensures that the beneficiary can smoothly access the funds that you intended to pass.
- It avoids any legal complications that might arise from multiple family members making claims to your insurance policy.
- It allows you to assign funds to complete the goals of your family. For example, your demise occurs within the policy period wherein you are the only bread earner. The death benefit can help your family continue their lifestyle or help your children continue higher education.
Is It Possible to Change the Nominee of A Term Insurance Policy?
Term insurance is a long term investment. There are several reasons you may find yourself in a position where you wish to switch your nominee. For example, the unexpected death of the nominee before you, change in your relationship or loss of trust. In such a situation, a thorough knowledge of the procedure required to change the nominee is essential.
Listed below is the stepwise process to ensure a successful switch of your nominees:
- Fill out the change of nomination form. This can be done either online or by visiting the branch office of your insurer. This form is easily available and requires only a few simple details regarding your policy and the person you want as your nominee.
- You must then submit this duly filled form to your insurer and explain the reasons for appointing a new nominee.
- A written acknowledgement must then be obtained from the insurer. It will provide you with a confirmation that your insurer is in agreement with your decision.
It is always advised to keep your immediate family members updated with all information regarding all the policies that you have purchased and any changes that you make to them. If you decide to change the nominee of your term insurance policy, you can also update the same information in your will to avoid confusion.
Note: Will of a person and term insurance are two separate policies/documents.
Changing a nominee in a term insurance policy is not a complicated procedure, as assumed by many. You must not hesitate to do so if you feel the need for it.
Errors Commonly Committed While Choosing A Nominee
Lapses in decision-making can cost policyholders and their families dearly in the long run. Here is a list of a few mistakes that are commonly observed during the nomination process:
- Assigning a single nominee to the policy: If your nominee unexpectedly passes away and the policy completes its term only afterwards, the insurer will have to figure out who is the legal heir to all your funds. This will delay the claim settlement process and cause unnecessary stress to your insurer and your family. This situation can be easily avoided by distributing your prospective death fund among multiple nominees.
- Appointing a minor nominee without a custodian: If you choose a minor to be your nominee, it becomes compulsory to appoint a custodian to the nominee. You are then required to update your insurer with the verified details of the custodian. In the absence of a custodian to a minor, the claim settlement process will not be initiated and your nominee will not be allowed the death benefit. You should also bear in mind that if the insurance company does not have the verified details of the custodian, the entire death fund will still be withheld from the minor nominee.
- Mentioning a legal heir who is not your nominee: Assuming that you want your nominee in a term insurance policy to be a person who is not your legal heir in the policy documents. Then your legal heir will have the right to claim the death funds over the nominee. If you wish to have a nominee who is different from your legal heir, you need to draw up a will in which you give absolute authority to your nominee in the term policy, over and above your legal heir.
- Not informing your nominee of the policy details: It is wise to keep your nominee acquainted with the know-how of the insurance policy you have purchased. They should also have a copy of the policy documents containing all the details. This will ensure that the claim settlement process is smooth and unhindered.
In Conclusion
The process of being able to provide for your family and loved ones even after your passing is a privilege. You can be assured that they will be well looked after and have something to fall back on. You must carefully purchase a term insurance policy and appoint a nominee to avoid misappropriation of your funds in your absence. However, all insurers advise extreme caution while selecting a nominee.
