What you should know about your life insurance nominee

Beneficial nominee: Ordinarily, a nominee is simply a custodian of assets for a person’s heirs. However, the situation is different in the case of a beneficial nominee in an insurance policy. A beneficial nominee is the spouse, parents and/or children of the insured. If mentioned as the nominee, they would be termed as “beneficiary nominees”.

Rishi Mathur, chief digital strategy officer, Canara HSBC OBC Life Insurance, said, “The normal or ordinary nominees hold the proceeds of the life insurance policy in trust on behalf of the legal heirs of the policy; however, the beneficial nominee is entitled to the claim amount payable by the policy.”

Shabnam Shaikh, partner, Khaitan Co., said that in 2015, the legislature enacted the Insurance Laws (Amendment) Act, 2015 (which was made effective from 26 December 2014). The amendment Act, among other things, amended section 39 of the insurance Act to provide that where the holder of a life insurance policy nominates his parents, his spouse, his children, his spouse children, or any of them (close relatives), the nominee(s) shall be beneficially entitled to the amount payable by the insurer.”

This means that upon the commencement of the amendment Act, if an individual has nominated his close relatives, such close relatives (beneficial nominee) will be the ultimate beneficiaries of the proceeds received from the policy not the legal heirs/legatees.

Notably, the change in the insurance Act applies to all life insurance policies maturing for payment after the commencement of the amendment Act. Therefore, even if a life insurance policy has been obtained prior to the commencement of the amendment Act, if it matures post its commencement, if the insured has nominated his/her close relatives, such individuals would receive the proceeds to the exclusion of the legal heirs/legatees of the deceased.

Thus, in the above-mentioned case, the mother being a beneficial nominee (who is a close relative) will receive the amount to the exclusion of the insured’s wife.

However, if the nominee (i.e. the mother herein) does not survive the insured (no fresh nomination has been made), then the proceeds go to the heirs or legal representatives (i.e. the wife herein as per the Will) of the insured.

Sajja Praveen Chowdary, head – term life insurance, Policybazaar.com, said that in the absence of proper nomination Will planning, if the policyholder dies, his/her dependents may have to run from pillar to post to claim the benefits. “Increased paperwork only delays complicates the process. In the absence of a proper nomination, various factors determine who the true beneficiaries are,” Chowdary added.

“However, in most cases, in the absence of a nominee, the insurer pays the policyholder’s insurance proceeds to the class-I legal heirs comprising immediate family members, such as spouse, children parents,” said Rushabh Gandhi, deputy chief executive officer, IndiaFirst Life Insurance.

While in some cases, particularly when there are multiple legal heirs, the insurers may request a joint discharge statement, waiver of legal evidence an indemnity bond to protect the interests of the relevant parties in the event of a claim settlement dispute.

Mint takeaway: The absence of nomination can be devastating for your family at a time when they require empathy, love support.

While it is not compulsory to register a nominee with the insurer, it is good practice to do so. It prevents disputes facilitates quicker processing of claims, ensuring that the beneficiary receives the death benefits without trouble.

Thus, a small effort diligence on your part today can save your loved ones a lot of time effort in the future.