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A life insurance policy provides financial aid to the heirs of a policyholder in case of his or her untimely demise. However, the heirs have to be assigned by the policyholder so that there is no confusion. The designated heir is known as a life policy beneficiary or nominee. The beneficiary can be any person whom the policyholder trusts. As a policyholder, you have the option to change the nominated person at any point if required. However, if your beneficiary is a minor, you need to assign a custodian. The minor can receive the benefits after turning 18 years old. Make sure to provide your beneficiary with copies of the life policy so he or she can claim the death benefit when required.
There are no rules regarding whom you can choose as your beneficiary. It can be any person from your family, friends, or someone you know from work. However, the insurance companies prefer that your beneficiary is from the immediate family. Otherwise, a legal dispute can take place between the policyholder’s family and the nominee. However, there is a legal way to avoid such a possibility. If you decide to make a friend or anyone who is not your family member as a beneficiary, you can simply make that individual an heir in your will.
The concept of a beneficial nominee was introduced by the Government of India in 2015 to make sure that the legal successors of a policyholder cannot claim the death benefit unless they are assigned as the beneficiaries in the life insurance policy.
If you do not assign a life insurance beneficiary or if the beneficiary passes away during the policy term, and the policy is not updated accordingly, the insurer follows certain mandates as per the situation.
If you have not made a will that assigns someone as your beneficiary, the death benefit is given to your immediate heirs. Only your spouse, children, and parents are considered in such a scenario.
If you do have a will, the Indian Succession Act, 1925 is followed by the insurers. The sum assured is distributed according to the will. However, the court needs to issue a succession certificate. Also, the beneficiaries will need to provide an indemnity or waiver of legal proof to the insurer.
To assign an insurance beneficiary, you need to provide their details when applying for a life policy. Once your application is accepted, the nominee will be considered as the legal beneficiary. You can also add or update the beneficiary later. To do so, you can collect the appropriate form from the insurer’s office or website. You need to sign a policy bond to complete the process when a witness is present.
You can change the beneficiary numerous times as per your requirements. However, you need to make sure that the previous and new beneficiaries are aware of the nomination so that there is no confusion in the future. You must make sure that the benefits of your life insurance do not fall into the wrong hands.Hence, you must think thoroughly before assigning a beneficiary.
Ref. No. KLI/22-23/E-BB/492
