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The Role Of A Nominee In Life Insurance

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The Role Of A Nominee In Life Insurance
Nirmala Konjengbam - 16 February 2020
Mumbai, February 16:Life insurance plan is a tool to transfer risk and provide financial security at the time of uncertainty. It also has an insurable interest and the policyholder appoints a person to receive the policy benefits in an unfortunate event such as death. To avoid dispute at the time of death claim it is important to appoint and update the policy’s nominee to receive all the benefits payable under the policy.

What is nomination?

The process of nominating a person or persons by the policyholder is to receive policy benefits during a death claim. So in case of an eventuality, the life insurance company pays the policy proceeds to the appointed person - called nominee.

Who can be a nominee?

A nominee is appointed by the policyholder and can be anyone to whom the policyholder wants to give a valid discharge to the policy monies in case of death of the policyholder during policy tenure.
As per Section 39 of the Insurance Act 1938, as amended by the Insurance Laws (Amendment) Act, 2015 (1) the policyholder of a life insurance may nominate the person or persons to whom the money secured by the policy shall be paid in the event of death. This nomination can be done when effecting the policy or at any time before the policy matures for payment. Where the nominee is a minor, the policyholder has to appoint a person as per the rules of the insurer, to receive the money on behalf of the nominee.
Any immediate family member (like spouse, children or parents) is made the nominee. They will automatically become the beneficial owners of the claim benefits and be referred to as ‘Beneficial Nominee’. This means that the death benefit will be paid to beneficial nominees and not to any other legal heir.

What will happen if the nominee dies before the policyholder?

Where the policy matures for payment during the lifetime of the person, whose life is insured or where the nominee or nominees die before the policy matures for payment, the amount secured shall be payable to the policyholder or heirs or legal representatives of the policyholder bearing a succession certificate.
If the policyholder survives till the maturity, all benefits payable under the policy will be paid to the policyholder. In case the policyholder dies after the maturity of the policy but before getting the proceeds and benefits, then the nominee shall be entitled to the proceeds and benefit of that policy.
It is always advisable to nominate an immediate family member to ensure there are no disputes in future between the nominees and legal heirs. A policyholder can change the nominee as many times as he or she wishes. However, the latest nominee supersedes all previous ones. At the time of nomination, always update the insurance policy to avoid disputes later.
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