Life Insurance Policy Nomination

Everything You Need to know about Nomination of Your Life Insurance Policy

Do you know who is the nominees of your life insurance policies? Do you know the nominee of the properties you own?

Appointing a nominee for all your assets is important. A property or investments without a nominee can entangle your near and dear ones in a legal battle.

Therefore, the act of nomination is your very important responsibility.

Read on to know more about nomination and life insurance policy.

In the case of Life Insurance Policies, appointing a nominee is altogether vital as the insured person wants the maturity benefit money to go to the nominee in case of his death.

The Misconception:

There is a general misconception about the nominees and legal heirs which needs clarification.

Legally it is the legal heirs who are entitled to receive the money from the nominee. The nominee is the immediate recipient of the money to whom the insurance company pays the money. The nominee is the caretaker of the money for the legal heirs.

So there are two types of people:

  1. Nominees are the person named in the policy to receive the money in case of the death of an insured.
  2. Beneficiaries are all legal heirs who are entitled to the assets of the deceased including the insurance money.

The widespread prevailing misconception is that the nominee is the final recipient and owner of the money. The insured person appoints a nominee assuming that the nominee will be the beneficiary of the insurance amount.

Suppose you appoint your spouse as a nominee. She will receive the money from the insurance company. But all your children and others who are your legal heir as per the law can claim the share from the nominee i.e. your spouse.

The Clarity:

In order to avoid this confusion of nominee and the legal heir, the Insurance Act was amended in 2015. The new provision matches with the public perception about the nominee.

Now there is a provision of beneficial nominees.

To make you understand the correct latest legal position here are a few pertinent FAQs about the Nomination for the insurance policy.

  1. Who are the beneficial Nominees?

The insured person’s spouse, children or parents, individually or in combination as mentioned in the nomination form are the beneficial nominees.

Anyone other than these can be a nominee but not the benefice nominees.

  1. Who can I appoint as a Nominee?

Anyone can be appointed as a Nominee. But your spouse, parents or children are considered beneficial nominees. Anyone other than these may be rejected by the insurance company as a beneficial nominee.

The beneficial nominees can receive and own the money.

In case any other person is appointed as a nominee, they are not beneficial nominees. Appointing other than beneficial nominees as a nominee could also be a threat to your life.

If you appoint anyone other than the beneficial nominees as a nominee, your legal heir will become the final owner of the money.

For example:

If Mr. A appoints Mrs. A his wife as a nominee, Mrs. A will become the beneficial nominee, and she can receive and own the money.

If Mr. A appoints Ms. C his girlfriend as a nominee, Ms. C will become the nominee but not the beneficial nominee. She can receive the money but can’t own it. She has to hand over the money to the legal heirs which are in this case Mrs. A, her children, and others as defined under the law.

You can appoint more than one beneficial nominee and mention their share in the nomination form. This way the death benefit is distributed in the ratio specified in the nomination form.

For example, you may specify your spouse will receive 80% share and two children will receive 10% each.

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  1. Is Nominee the final owner of my Insurance claim money?

No, if the nominee mentioned are not the beneficial nominee, i.e other than spouse, children, and parents.

Yes, if the nominees mentioned are the benefice nominee, i.e. spouse, children or parents.

However, if there is a WILL executed by the insured person then the people mentioned in the WILL, will be the final owner of the money.

In the absence of a WILL, the beneficial nominee is the final owner of the money.

  1. Can I change the Nominee?

Yes, anytime before the maturity of the policy. The latest change on the record of the insurance company will be acted upon by the insurance company.

Make sure to get an acknowledgment of the nomination form filed with the insurance company.

  1. What happens if I do not appoint a Nominee?

If there is a written and registered WILL, money will go to the person named in the WILL. They become the owner of the money.

In the absence of a WILL, money will go to the legal heirs through a legal process.

  1. Can I appoint minor as a Nominee?

Yes, but in that case, you also need to appoint an Appointee. The appointee will receive the money from the insurance company. The appointee will pass it on the money to the minor when the minor attains the majority.

  1. Can I appoint more than one Nominee?

You can appoint more than one nominee. Ideally, it is recommended to appoint more than one nominee.  In case one and only nominee dies, the money will go to the legal heirs.

To avoid such a scenario, you can appoint successive nominees. Which means if A is a nominee and when A dies, B will become a nominee and when B also dies, C will become a nominee.

You also can appoint joint nominee with their share of the money. Which means you can appoint two of your children as nominees for 50% each share.

A nomination is an important act of responsibility you have to execute. Do it carefully and thoughtfully for smooth transfer of money to the intended beneficiary.

Summary:

  • Wife, parents, and children if appointed as nominees of an insurance policy, are the beneficial nominees. They have the right to receive and own the money.
  • Anyone other than the above if appointed nominees, becomes only a nominee and not a beneficial nominee. They have no right to own the money; they can receive the money. Legal heirs are the owner.
  • A written registered WILL supersedes the rights of beneficial nominees and legal heirs.

An appointment of nominees for all your assets including life insurance policies is an important part of your financial planning. Don’t forget, just do it today.

Do you have any other queries about the nomination? Write to us.

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