It is not just about the name! There is more to nomination in life insurance than you think.
Getting life insurance is all about securing the future of your loved ones and nomination is an important part of it. Nomination ensures that your loved ones benefit the financial security even in your absence. To make sure everything goes smooth during the disbursal process of your insurance policy, it is crucial that you understand the new life insurance nomination rules laid out under Section 39 of the Insurance Act (1938) via the Insurance Laws (Amendment) Act (2015).
The nomination process is still the same where you are required to fill out the complete details of the nominee in the required field of the life insurance form; the new rules, however, protect the rights of the nominee and serve well in streamlining the disbursal process.
New Nomination Rules:
The most notable concept under the new rules is the introduction of ‘Beneficial Nominees’. There are five important points to remember about this concept:
- The nominee must be in direct family relation with the policyholder to be identified as the beneficiary of the claim money.
- The nominee(s) must be the direct dependent(s) of the policyholder, such as, parents, spouse or children.
- Siblings, even though fall under family relations, will not be considered as the beneficial nominees.
- Only the beneficial nominee(s) will have the right over the claim money, regardless of who the legal heir is. The only exception would be if the legal heir can prove that the claim money would not be beneficial to the nominated person(s).
- The beneficial nominee(s) can claim complete maturity benefits even if the insured dies after the policy period is over but before receiving the claim benefits.
Earlier, the nominee was simply supposed to be a mere caretaker of the claim benefits and money while the legal heir as presented in the ‘Will’ had absolute rights over death benefits at the time of demise of the insured. In addition to that, the nominee(s) could not claim the maturity benefits in case the policyholder dies after the policy period was over and before receiving the claim money.
The new rules are thus beneficial as they clarify the owner of claim money and put an end to the possible dispute between nominee(s) and legal heir(s).
Other common mistakes and how to do the nomination right:
- Make sure you appoint a valid dependent as beneficial nominee, as in case the nominee fails the legal test, the nomination will be deemed invalid.
- You must keep in mind that insurance companies will not release any amount to a minor, who is under the age of 18 years. Ergo, it is either better to appoint a major nominee, such as your spouse or dependent parents, or if you have made up your mind about nominating your minor child, then make sure you appoint a responsible and trustworthy Appointee(custodian) as well.
- In case your nominee has moved to a new place or has changed the name (as most girls change their surname after marriage), Change of address, etc. it is your responsibility to update that information in your insurance policy, so that they can receive the death benefits without any hassle as you intended them to.
- If a situation arises where the nominee dies before the insured, or you no longer have an amicable relationship with the previously appointed nominee, you can change the nominee details by filling the required form.
- Make sure you inform the nominee(s) about their nomination. Failure to do so can deprive the nominee of the financial support that you intended to provide in your absence, as insurance companies generally do not reach out to the nominees on their own.
- It is advisable to make multiple nominations for your life insurance policy along with their complete information and a defined break-up percentage for each nominee. This way you will have to worry less about updating the nominee details amidst a crisis.
Keep these things in mind to assure that your appointed nominee gets the absolute rights and financial protection as you intend to provide in your absence. For further clarifications or queries, you can call us at 022-67136713 or mail us on ask@5nance.com.
