Nominee in Insurance - Meaning, Importance & Eligibility

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Nominee in insurance - A Complete Guide on nomination in insurance

Nominee in insurance - A Complete Guide on nomination in insurance
  • 12th Sep 2022 |
  • 13,139

Understanding the concept of a nominee in insurance is essential. It is an integral part of the policy, and every policyholder should be aware of it.

What is a Nominee in Insurance? (Nominee Meaning in Insurance)

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 you have to nominate to receive the policy proceeds after an unfortunate incident occurs. One policyholder can designate more than one beneficiary and mention their share in the proceeds of the policy.

What is Nomination in Insurance?

It is crucial to answer one of the most commonly asked questions, “can a policyholder nominate anyone for his insurance policy?” To find the appropriate answer, you must know who the nominee under the policy of life insurance is,The process by which a policyholder appoints an individual to receive the benefits in case of a death claim is known as a nomination. However, before understanding the nitty-gritty of nomination in insurance.

Who can be a Nominee in Insurance?

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, spouses, etc. The following are the type of nominees that can offer the benefits:

1. Beneficial Nominees

Any immediate family member can be made a nominee. They will become the beneficial owners of the claim benefits. Therefore, 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 old, 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 won’t be easy 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 one will supersede all the previous ones.

Difference Between Nominee and Beneficiary

Once you understand the nominee meaning in insurance, 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 life insurance nominee 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. Therefore, it is of utmost significance to choose the right person as a beneficial nominee at the time of filing the insurance nominee form.

Remember this when you nominate an individual as a nominee in insurance:

  • You can change the nominee as per your flexibility.
  • Your nomination will not be considered a beneficial nominee if you have nominated someone who is not connected to you in any way, and the legal heirs will get your money.

While the entire concept of a nomination in insurance is to provide benefits to your loved ones, failing to understand its critical aspects can lead to insurance claim rejection. Therefore, you must follow the guide mentioned above and choose the right person as a nominee in insurance to ensure they receive the claim benefits per your wishes.

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