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Ref. No. KLI/22-23/E-BB/492
Yes, a minor can be a nominee in a life insurance policy, but certain legal provisions apply. Since a child cannot manage financial matters, the policyholder must appoint a responsible guardian or trustee to oversee the claim amount until the nominee minor reaches adulthood. This ensures that the funds are used wisely for the child's benefit. Understanding these rules helps in making a secure and informed nomination decision.
Life insurance is all about securing your loved one’s financial future. But what if the person you want to nominate as your beneficiary is still a minor? Can a child legally receive the claim amount in case of an unfortunate event? This is a common concern for parents who want to ensure their children are financially protected, no matter what happens. While a minor can indeed be a nominee in a life insurance policy, there are specific rules and safeguards to ensure the funds are managed properly until the child reaches adulthood. Let’s break it down in a simple and easy-to-understand way.
A nominee in life insurance is the person who will receive the insurance payout in case of your unfortunate demise. Think of it as picking someone you trust to take care of the financial benefit when you are not around. But here is an important twist: if the nominee is a minor, they can’t directly receive the payout until they turn 18. In such cases, an appointee or guardian is assigned to manage the funds on their behalf. Choosing the right nominee is crucial because they will handle the financial support you intend for your loved ones. So, whether it is your spouse, child, or even a close friend, ensure your money goes into the right hands, and they will ensure your minor nominee is looked after till they reach legal age.
Absolutely! But there’s a little catch. A nominee minor means a person under 18 years old who is named as a beneficiary. It is important to remember that a nominee minor cannot independently claim the benefits until they reach adulthood. That is why, when appointing a minor as a nominee, it is crucial also to assign a guardian who will manage the claim on their behalf. This ensures a smooth process without legal complications. So, if you are considering nominating your child or any young family member, appoint a trustworthy guardian to oversee things until they come of age!
When planning financial security for the future, ensuring that your assets are passed on to the right person is crucial. This is where the concept of nomination comes into play. However, what happens when the nominee is a minor?
When a policyholder nominates a minor as their beneficiary in an insurance policy, they must also appoint a guardian or appointee to manage the claims proceeds until the minor reaches the legal age of 18. The role of an appointee/guardian is crucial in ensuring that the benefits are safeguarded and utilized in the minor’s best interest. Their key responsibilities include:
When minors turn 18, they legally become adults, significantly impacting any financial accounts, investments, or insurance policies held in their name. Here’s what happens when they reach this milestone:
If the minor had a custodial account, such as a bank account or investment in their name managed by a parent or guardian, it would typically be transferred to their full control. They will now have the authority to manage the funds, make withdrawals, or continue investments based on their financial goals.
In the case of health insurance, a child turning 18 does not automatically lose coverage under a family floater plan, but they may need to be moved to an individual plan once they cross a certain age limit (often 25, depending on the insurer). If the minor had a life insurance policy under their name, they would now be responsible for paying premiums and managing the policy.
Once the minor turns 18, any income generated from investments under their name is taxed according to their own income tax slab rather than being clubbed with the parent’s income. This change allows them to take advantage of tax deductions and exemptions available for independent taxpayers.
Any fixed deposits or savings schemes opened in the minor’s name will typically mature under their ownership. They can withdraw or reinvest the funds according to their financial needs. If the investment has a lock-in period beyond their 18th birthday, they may need to provide fresh KYC documents to continue holding it.
Financial institutions require individuals to update their Know Your Customer (KYC) details upon turning 18. This means submitting valid identity proof, address proof, and bank details to continue operating any accounts or investments previously held under a guardian’s oversight.
When it comes to financial planning, many individuals consider nominating a minor—typically their child, as a beneficiary for investments, insurance policies, or bank accounts. While this can be a thoughtful decision, it comes with both advantages and challenges. Let’s take a closer look at the pros and cons.
One of the biggest benefits of nominating a minor is securing their financial future. If something were to happen to you, the funds would be available for your child’s (if they are the nominee minor) upbringing, education, and well-being.
Many financial instruments, such as life insurance and fixed deposits, allow minors to be named, ensuring that the wealth continues to grow until they are of legal age to access it.
Knowing that your child is financially protected provides security. This is especially important if you are the primary breadwinner of the family.
Nominating a minor can be a strategic move in estate planning, as it simplifies the inheritance process and prevents disputes among other legal heirs.
Since minors cannot manage finances independently, a guardian must be appointed to handle the funds until the child reaches adulthood. Without a trusted guardian, financial mismanagement can occur.
Without a clearly defined legal guardian, the nomination process can become complex. Court intervention may be required to determine the rightful management of the funds.
Until the minor reaches the legal age (18 years in most cases), they cannot independently claim the funds. This can be a drawback if immediate access to money is required for emergencies.
If the appointed guardian does not act in the minor’s best interest, the funds could be misused, impacting the child’s financial security.
Choosing a minor as a nominee in a life insurance policy is a thoughtful way to secure your child’s future, but it requires careful planning. Appointing a trustworthy guardian ensures the funds are handled responsibly until the child ages. Understanding the legal aspects can help you make an informed decision, giving you peace of mind that your loved ones will be cared for in your absence. So, if you’re considering this option, take the necessary steps today to safeguard your child’s financial well-being!
1
No, a minor cannot directly receive the insurance payout. A guardian must be appointed to manage the funds until the minor reaches the legal age of 18.
2
A parent, legal guardian, or any trusted individual the policyholder chooses can be appointed as a guardian. If no guardian is specified, the court may appoint one.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Features
Ref. No. KLI/22-23/E-BB/2435
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
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