Everything about the Nominee in Life Insurance

One of the most effective forms of life insurance is term insurance, providing financial support to your loved ones at affordable rates. It provides a significant assured sum at low premium rates. The benefit amount in the case of the demise of an insured individual during the term of the insurance policy goes to a nominee. 

However, in whole life insurance, the insured gets benefits for their lifetime, given they have paid the premiums on time. Since a nominee is an integral part of an insurance policy, every policyholder must understand the concept and rules for nominees in life insurance policies.

An insured person chooses someone of their preference to receive life insurance benefits in case of their demise. The person they nominate or choose is known as a nominee in life insurance. It can be anyone the policy buyer wishes to protect in the event of their untimely demise. 

Section 39 of the Insurance Act 1938 clearly states the rights of the nominee in a life insurance policy.

As a policyholder, you can choose anyone to be the nominee for your life insurance. However, in the case of a non-family member, you have to prove an insurable interest. This means you have to show that the nominee will suffer financial loss in your absence. 

The following are the rules for choosing eligible people for life insurance policy nomination:

• You can appoint your wife and children, who are your legal heir, as your nominees. 
• Members of your immediate family, such as your siblings and parents, are eligible to be your nominees. After receiving the insured sum, they can hand it over to another person of your preference. 
• You may also appoint people from your extended family, such as your relatives, cousins and even friends, as your insurance nominee. However, you must check with your insurance provider and get their approval.

The goal of life insurance is to give financial benefits to the near and dear ones of the policyholder in their absence. Selecting a nominee ensures that none other than the people you have specifically chosen receives financial benefits if you are no more. 

In the absence of the policyholder, a nominee claim policy benefits by submitting the following documents to the insurer: 

• Identity proof
• Claim intimation letter
• The policyholder's death certificate
• Post-mortem or hospital record in case of an unnatural death 

This list might vary across insurance providers. 

There are various categories of nominees for a life insurance policy.

When you are researching nominees, it is important to know about the different types of nominees that there are. This will aid you in selecting someone to receive the benefits of your policy in the absence of a legal heir or related scenarios. 

Following are the 5 types of nominees:

1. Beneficial nominees

2. Non-family nominees

3. Minor nominees

4. Successive nominees

5. Multiple nominees

Insurance companies also give you the option to nominate multiple people to receive the benefits of your policy. You can select multiple nominees, all of whom will receive an equal amount of the death benefit. 

Since there are so many different types of nominees, it can baffle you. However, there are reasons why selecting a nominee is an essential part of buying an insurance policy.

1. Secures Your Loved Ones

2. Ensures Your Money Ends Up in the Right Hands

Since a nominee will be responsible for claiming the policy sum after your demise, you should select someone trustworthy. A nominee can be anyone who you think will be able to take responsibility for the well-being of your family in your absence. 

Moreover, insurance companies also check whether the person you are nominating will actually suffer losses in case of your demise. In other words, they check whether there is an insurable interest for the nominee. In the case of non-family members, proving insurable interest is harder since many times there are chances of fraud. Thus, it requires many additional documents and verification procedures.

Thus, make sure to check with your life insurance provider about who you can select as your life insurance nominee.

Insurance companies provide you with the freedom to change your nominees multiple times. You can do this by updating the personal information of your new nominee to the insurance provider. You can select or modify your nominees anytime during the beginning or within the duration of a term policy.

Usually, for this process, you need to take the approval of your insurance provider and submit the last approved nominee documents to avoid any confusion. In case of your nominee's demise before the completion of the policy tenure, you have to select someone else.

The process of assigning a nominee is fairly simple since you don't need to submit any credentials of the nominee. You have to fill up a form with the details of a nominee's name, age and relation with you and get approval from your insurance provider. 

There are certain things that you should keep in mind that will help to justify the objective of your appointing a nominee.

You should keep in mind the following 3 things before choosing people to receive your insurance benefits:

• Make sure you choose someone who you can trust with your money and the responsibilities of your loved ones. It is also better to choose a spouse or relative instead of someone completely unrelated to you.
• It is wise to ensure your nominee is aware of the process of claim settlement of the insurer and understands their duties as a nominee. 
• Remember that you can cancel or change your nominees during the policy tenure. You can do this by informing your insurance company in advance.

There are also certain mistakes that you should avoid making in the process of nomination.

1. Single nomination

2. Not Updating Details of Nominee

Although you can choose anyone as the nominee of your insurance, not selecting members of your immediate family is unfamiliar. In such cases, you have to provide valid reasons for your choice of nominee to your insurer. Failing to provide a satisfactory reason for insuring a non-family member can result in the rejection of your application for a nominee.

The other reasons for the rejection of the life insurance claim are:

• If the policyholder provides false information in the application form.
• In case the insurance buyer does not disclose medical history.
• Insurance companies can reject claims of nominees if the policy buyer does not pay the premiums on time.

Since nominees are an integral part of a term insurance policy, it is important to ensure that they are aware of the rules for nominees in life insurance. Sync between you and your nominees will help you eliminate the common mistakes and select the ideal person to receive your insurance benefits.