Who Should be the Nominee for Your Term Insurance?
It’s a unanimously asked question and yet few know the correct answer, or even the approach needed to reach the correct answer. So, let’s clear the air around this once and for all, taking care of your insurance woes!
Starting with the basics - a term Insurance is a life insurance product which, for a certain period of time, gives financial coverage to the insured person. In this way, it can be used to secure the financial needs of the dependents one may have. Should the said policyholder face an untoward circumstance, then the amount as per the terms of the policy is paid to the nominee. This lump sum amount is known as the sum assured, and it is mandatory to mention a nominee/nominees who will receive this amount in such a scenario. When a person is filling up their insurance policy form, a nominee must be included precisely for this reason. Section 39 of the Insurance Act 1938 provisions for the below as nominations for the life insured: Parents (or)
- spouse (or)
- children (or)
- spouse and children (or) any of them
If however, policyholder has left a will behind, then the claim amount gets distributed according to the terms of the will.
Moving ahead, what are the benefits of having a nominee for your terms insurance? They are several! Through a nomination, a policyholder can select the people who will receive death benefit when a death claim gets fully processed. Applicable bonuses if any are also paid in addition to the death claim.
Moreover, it also protects the interests of the policyholder, and this is the primary purpose of a life insurance, is it not? To further to add to this, there’s also the fact that if the nominee passes away after the policyholder but before he/she has received payment of his/her due share of amount secured under the policy, their share amount is then paid to their heirs or legal representative or the holder of succession certificate of this nominee.
With these things in mind, what does it require to make someone a nominee? The following are the particulars of the nominee are required to be given to the insurance company:
- Relationship between them and the policyholder
A nominee can also be changed later if the policyholder so desires. In this scenario, the policyholder has to approach Insurance company and initiate Nominee change. It is infact recommended that as a policy holder you must review your financial documents regularly to ensure that post any major life altering event, the intended people in your life get the benefit without any delay. One classic example of this is an insurance policy taken before marriage with parents as nominee. After getting married and having children, a person may want to replace or add spouse & children as beneficiaries. Another situation can be demise of existing nominee. There is no limit on how many times a nominee can be changed during the term of a particular policy though some companies may charge money for nomination change.
Now that we have accounted for all this we hope it would help you get a clarity who is it that you should nominate to receive the claim. We also hope you have no more doubts about what a nominee is and who you should select to be one. If you do, you can always refer to Section 39 of the Insurance Act 1938 last amended in 2014!