Who is a nominee/beneficiary?

Who is a Nominee in Term Insurance?

A term insurance nominee is the person chosen by the policyholder to receive the sum assured if the policyholder passes away during the policy term. This individual acts as the beneficiary and is usually a close family member, like a spouse, parent, or child, who will receive the life cover amount directly from the insurance company.

Appointing a nominee to your life insurance policy ensures that the death benefit is paid to the right person without legal problems, providing financial support during an emotionally difficult time.

Let's Understand What is a Nominee in Term Insurance and How It Helps with an Example

Ravi, a 38-year-old marketing professional based in Mumbai, lives with his aging parents. As the sole breadwinner, he fully understands his responsibility to ensure his family's financial well-being. To secure his family's future, Ravi purchases a term insurance policy with a sum assured of ₹1 crore.

Ravi understands that if something were to happen to him unexpectedly, his retired parents might struggle to manage their living expenses and healthcare needs. Ravi names his mother, Meena, as the nominee for his term insurance policy to ensure his family is financially protected.

This means that in the unfortunate event of Ravi's death during the policy term, Meena would receive the ₹1 crore sum assured from the insurance company. The payout would help her cover everyday expenses and healthcare costs and maintain a comfortable lifestyle without the added burden of financial instability.

By designating his mother as the nominee, Ravi ensures that his parents will be financially secure even in his absence, giving him peace of mind knowing they won't face financial hardship. This example highlights how choosing a nominee in term insurance can provide essential financial support to loved ones in need.

What is a Beneficiary in Term Insurance?

A beneficiary in term insurance is the person who will receive the insurance policy payout and other benefits, such as income benefits in the event of the policyholder's death. Unlike a nominee, a beneficiary has legal rights to the policy’s proceeds, and their claim is treated as a financial transfer of the benefits per the insurance contract's terms.

What is the Difference Between Beneficiary and Nominee?

To answer, is nominee and beneficiary same in term insurance, the terms “nominee” and “beneficiary” often coexist, yet there are differences between the two in terms of benefits and claims process. We understand the difference as follows:

Who is Eligible to be Your Nominee in Life Insurance?

Your life insurance policy allows you to have a nominee falling into the following categories:

Legal heirs: One can nominate their legal heirs such as spouse or children so that they receive the sum assured amount that will help them secure their financial future

Other members of family: Your parents, siblings, or other family members can be nominated as your life insurance nominee. They can receive and manage the insured sum for the person you aim to protect financially.

Extended family and friends: It is possible to make your extended family and friends nominees. However sometimes approval from the insurance company might be required for the same.

What are the Different Types of Nominees in India?

Choosing the right life insurance nominee is an important task since these individual(s) receive the benefit after your death. The nominee could be your family or any person other than your family. We explore the different types of nominees in this section:

Beneficial Nominee

According to the Insurance Laws (Amendment) Act, 2015, if you appoint immediate family members (such as your spouse, children, or parents) as nominees, they are given priority in receiving the death benefit over other legal heirs. These nominees are called beneficial nominees because they are the exclusive recipients of the insurance payout.

Minor Nominee

Often, parents choose their children as nominees. However, if the child is under 18 years old when the parent passes away, the child is considered a minor in the eyes of the law. In such cases, the parents must also appoint a guardian who will receive the payout on behalf of the minor. When the child turns 18, they will legally receive the death benefit directly from the guardian.

Not a family member nominee

While it's common to name family members as your life insurance nominee, you can choose someone outside your family. This could be a close friend, colleague, or even someone you trust but isn't related to you. If you appoint a non-family member, they will act as custodians and hold the death benefit until the legal heirs claim their share.

Multiple Nominees

One can nominate more than one individual. Most people choose this option to divide the benefits among all family members.The policyholder can also decide what proportion of the payout will be given to which nominee.

One can fix the proportion of the benefits also.

Wrapping it up!!

One can see that choosing the right nominee is of utmost importance. A nominee is a person who will receive the sum assured from your policy after your demise. One should be mindful as to whom they are making a nominee for their policy. Nomination thus becomes a critical component of financial planning, ensuring that the benefits reach the intended persons. It is important to ensure the well-being of your loved ones after your demise.

Note: You should also check the term insurance benefits if you are planning to purchase the term insurance plan.

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