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It is important to understand the concept of a nominee in a life insurance policy. It is an important part of the policy and every policyholder should be aware about the same.
A nominee is a person who holds the property of the deceased until he has to distribute this property to the legal heirs. In a life insurance policy, the beneficiary is an individual who you have to nominate to receive the policy proceeds after an unfortunate incident takes place. One policyholder can nominate more than one beneficiary and mention about their share in the proceeds of the policy.
The process by which a policyholder appoints an individual to receive the benefits in case of a death claim is known as a nomination.
Any individual to whom the policyholder wishes to offer the accrued financial benefits after death can be a nominee. Most policyholders prefer to appoint children, spouse etc. The following are the type of nominees that can offered the benefits:
1. Beneficial nominees
Any immediate family member can be made a nominee. They will become the beneficial owners of the claim benefits. They will be referred to as beneficial nominees. Only immediate family members can be appointed as beneficial nominees.
2.Minor nominees
Many policyholders appoint minors as a nominee in insurance. However, children below the age of 18 are not considered eligible to handle the claim amount and the policyholder will have to assign a custodian for them. If there is a claim when the nominee is below 18 years in age, the claim will be paid to the custodian until the nominee becomes an adult.
3. Non-family nominees
As strange as it may sound, the nomination of a stranger does not really make sense. Insurers do not accept strangers as nominees. Hence, even if you want to nominate a distant relative or a friend, it will be difficult to do so. Moreover, appointing a nominee who is not related to you is a moral hazard. The insurance company might refuse this nomination.
4. Changing Nominees
You can change the nominee multiple times and the latest nominee will supersede all the previous nominees.
Once you understand the nominee meaning, you will be in a better position to decide on who you want to nominate for your policy. A nominee is an individual who will have legal rights on the proceeds when the policyholder dies. According to new rules, only the people mentioned as beneficial nominees will have the right to receive policy proceeds. Others are not eligible to receive the proceeds of the policy unless they are beneficial nominees. It is important to choose the right person as a beneficial nominee at the time of filing the insurance form.
Remember this when you nominate an individual as a nominee in insurance:
Therefore, you must follow the aforementioned guide and choose the right person as a nominee to ensure that he/she receives the claim benefits as per your wishes.
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- A Consumer Education Initiative series by Kotak Life
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