Who Can Be Nominees in a Term plan?

Note: Know more about what is term insurance first before reading this article.

Who Is a Nominee?

A nominee is an individual or a group appointed by the term plan policyholder who has legal rights to claim the death benefits in case of the insured's unfortunate demise. The nominee or the beneficiary is chosen at the time of buying the policy.

A nominee is generally a person the policyholder trusts to use the death benefits appropriately in securing their family's financial well-being. Hence, a policyholder must be diligent and choose the nominee wisely to avoid passing the sum assured into the wrong hands.

Generally, it is advised to select immediate family members such as a spouse, children, parents, or a close relative as a nominee to fully utilize the sum assured for catering to the family's financial needs.

Before choosing a particular nominee, the policyholder must discuss with that potential nominee about the roles and responsibilities and assess whether they are capable of handling it so that your family should not suffer because of your wrong choice.

Can You Appoint Multiple Nominees? How to Split the Benefits?

Yes, a policyholder can have more than one nominee. The rules of term insurance allow you to share the claim amount with more than one person. You can assign the share of the sum assured to each nominee in percentage, and the sum of the percentages must be equal to 100%.

For instance, if you have purchased a term plan insurance policy of Rs 50 lakhs and choose your spouse and two children as nominees, you must assign the proportions in terms of percentage share for each nominee. You may select 50% for the spouse and 25% each for your two children.

It is advisable to choose multiple nominees, as there is a chance a nominee may pass away. Also, if there is a minor nominee, then a custodian has to be appointed until that minor nominee reaches 18.

Legal and Practical Tips for Nominating Your Term Plan

Once you've decided to split the benefit between more than one nominee, it's just as important to make sure that decision actually holds up legally. A few practical steps can save your family a lot of hassle later:

• Keep your nomination and your will aligned: A nomination is really just a declaration of who should get the money; it isn't always treated the same as a will in the eyes of the law, and in some situations, a will can override it. So whenever you update your will, go back and check your nomination too, and make sure the two aren't contradicting each other.

• Inform your Insurer: You have split the benefit between your nominees, that split only becomes legally valid once it's formally recorded with the insurance company.

• Get proof once it's updated: Whether you're adding, removing, or changing someone's share, ask for an updated policy document or at least a written acknowledgement. That way, there's no confusion later about what was actually recorded.

• Regularly review your nomination details: Marriage, a new child, a nominee passing away, or a change in someone's financial situation, these are all good reasons to revisit the split. It won't stay accurate on its own just because you set it once.

Types of Nominees

While anyone can be appointed as a nominee by the policyholder, some laws are laid for the type of persons that can be named as a nominee. The different types of nominees prescribed by the government are:

• Beneficial nominees
  As per the latest regulations, if any immediate family member such as a spouse, children, or parents are made as a nominee in a term plan policy, then they will become beneficial owners by default to claim the death benefits and will be referred to as Beneficial Nominees.
  It means that the entire lump sum amount will be distributed to the beneficial nominees and not to any other legal heirs under any circumstances. Hence, it is advised to assign immediate family members as nominees to avoid any disputes in the future during the claim.

• Minor nominees
  It is usual for policyholders to make their children nominees for their term plan policies, and rightly so because the primary purpose of purchasing the term plan is to secure the children's future.
  If the nominated children are under the age of 18, they will not be considered eligible to handle the claim amounts. Hence, the policyholder must assign a custodian who will take care of the claim amount until the children reach 18.

• Non-family nominees
  Usually, the insurer doesn't accept non-family members as nominees for the term plan policy. A policyholder can nominate relatives or friends, but to prove 'insurable interest' will be difficult.
  Also, the moral hazard involved in appointing non-family members will push the insurer to reject the application or ask for a detailed explanation before accepting them as nominees.

Changing Nominees for Term Plan Policy

All policyholders have the option to change their nominees during the tenure as per their wish. There are no limitations on the frequency but the latest nomination will supersede all the previous ones.

What Happens In Case of No Nomination?

If a policyholder cannot add a nominee for some unknown reason or the nominee dies before the policyholder, the following clauses become valid:

• If the policyholder has not proposed a Will concerning the term plan, the claim amount and bonuses are given to class 1 legal heirs, including spouse, son, father, and mother.

• If the policyholder has proposed a Will, then:

  • The process defined in the Indian Succession Act 1925 is applied

  • The claim amount is disbursed as per the term of the will

  • The processing of the term plan policy will be executed after the court issues a succession certificate

  • The insurance company will ask the beneficiaries to provide a waiver of legal evidence towards the insurer

Common Mistakes Made in Policy Nominations

Here are some mistakes that should be given immediate attention and brought to the insurer's notice:

• Single nominee
  Most policyholders appoint a single nominee to their term plan. If the nominee passes away before the policyholder, a new nominee must be selected as soon as possible. It is always wise to have multiple nominees and divide the sum assured among them in percentages.

• Minor nominee
  If a policyholder misses appointing a custodian during the policy term for a minor nominee (under 18), the claim settlement comes to a halt. The minor nominee may not receive any death benefits.

• Nominee Details not up to date
  The policyholder must make an effort to frequently update details of the nominee that include name, address, and other relevant information. It becomes crucial if the current nominee dies within the policy tenure.

• Lack of nominee’s know-how
  The policyholder must share the policy details with the nominee to initiate the claim process without delays. If the nominee doesn't claim within the stipulated time, there are chances of losing the full benefits.

• Misinterpretation of nominee rights
  A nominee might be under the impression that the claiming rights to avail benefits entirely belong to him, which is not valid. If the nominee and the legal heir are different, the legal heir wins the right to claim the death benefits.

Benefits of Having a Nominee

The main benefits of having a nominee appointed for your term plan are:

• Fulfil the purpose: The primary purpose of purchasing a term plan is to secure the future of the policyholder's family in case of untimely death. Appointing a nominee will make sure that the death benefits are transferred to the policyholder's wish.

• Multiple nominees: The policyholder can choose more than one nominee. Hence, if one nominee dies during the policy term, the benefits are transferred to other nominees without any hassles.

• Sharing of the death benefits: The policyholder can appoint multiple nominees and share the benefits in different proportions so that no family member feels left out.

• Cancellation or modification: The policyholder can cancel the existing nominee and choose a new nominee at any time during the policy term. There is no upper boundary set on the number of times on nominee change.

Summing It Up

A nominee is as important as the term policy. Any individual can be appointed as a nominee by the policyholder. However, some laws and guidelines imposed by the government must be followed to ensure the death benefits are given to the right person or family.

Note: Check out the best term insurance plan in India and choose one that suits your requirements.

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