What is a Nominee? What does a nominee relation mean in an Insurance form?

All of us purchase life insurance with the primary motive of providing financial protection to our loving dependent family members in case we are not there in this world to support them. Life insurance policy acts as a financial savior in the case of unfortunate death of the earning member of the family at the time where mental state of mind is already in a deep shock and there are very less options left for financial revival of the family.

We all want that even after our death, family members need not to be in any financial depression and that is the first purpose of purchasing life insurance with other purposes like disciplined savings, leaving behind some asset, retirement planning etc.

This wish of ours that after our life ends our dependents should be financially stress free can be achieved by nominating our dear ones in the life insurance policy while purchasing the same. It is highly advisable to nominate our family members under the life policy.

The life assured while purchasing the insurance policy only, chooses his nominee or nominees with the percentage share that he intends the insurance proceeds to be distributed amongst them. Section 39 of the Insurance act 1938 governs the nomination provisions under an insurance policy. The nominee in most cases will be the spouse, children and/or parents of the policyholder. We have already explained that what a nominee is and in next section will elaborate a few details about the same.

Even if your agent while concluding the sales process and picking up the premium Cheque does not informs you about the nomination and in hurry asks you only to sign on the proposal form, you should yourself ask the agent about the same and make sure that your insurance policy is nominated in the name of your dependent immediate family members. Nomination will be allowed only when the proposer and the life assured are the same person and not when they are different people.

Beneficial nominee: We have mentioned above that nominee should be close relations who are dependents generally spouse, child and/or parents. If that is the case the claims proceeds will be paid out to them and they are termed as beneficial nominees. Death benefit will always be paid to beneficial nominees and not to anyone else under any circumstances.

Earlier in many cases the legal heirs used to claim on the death benefit of the insurance policy and hence this concept of beneficial nominee was introduced in 2015. When there are multiple nominees under the policy the benefit will be jointly payable to them as per percentage allotment done in the proposal form or survivors of them.

Minor Nominee: Concerned with the future of their children after one’s life ends, in many cases people want to make their children nominees under the insurance policy. One can obviously do a percentage wise allotment of the benefit proceeds among different family members.

Minor children below the age of 18 cannot be considered to be paid the claim benefits and thus a custodian or appointee needs to be named if the policyholder wants to nominate his minor children under the policy. If at the time of the claim the nominee is below 18 years of age the custodian is paid the benefit amount till the child turns 18. Once he turns 18 the entire claim amount needs to be mandatorily paid by the custodian to the nominee.

Non-family nominees: Insurable interest is one of the core principles of insurance and needs to be justified in any insurance contract. There is an issue of proving the insurable interest if someone wants to make a distant relative or other person nominee under the life insurance policy.

You can make a non-family member nominee under the policy but this unusual case is questioned by the insurance company to a greater extent as in addition to insurable interest there is also a chance of moral hazard associated with the same. In many cases the insurer may reject the nomination or keep asking further questions to validate or justify the nomination till they are satisfied about the same.

One should always consider making clear nominations under the life insurance policy to our immediate dependent family members and leave no ambiguity in the same that who should be the recipient of the claim proceeds.

Changing Nominees: One needs to update nominees is all the life insurance policies as per the current situation to include those people whom the policyholder actually wants the claim proceeds to be paid. For instance, we generally keep our parents as nominee under the insurance policy when we are single but after marriage and having kids one may consider making them as nominees or may want to add their names and allot a percentage share of the benefit. A policyholder can change nominees as many a times he wants but any updating of nominees supersedes all the previous ones.

The process is simple and one may approach their insurer directly or the intermediary like agent to change the nomination. The requisite documents need to be provided like ID and address proof of the nominee, relation with the policyholder and the original policy bond. A required fee also needs to be provided after which the nomination change under the policy is endorsed.

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