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Buying a life insurance plan is important to secure the financial future of your loved ones. However, to serve the purpose effectively, you need to assign a trustworthy and responsible person as the nominee.
Nomination is the process of authorizing a person (or people) as a nominee in a life insurance policy, to make sure that he or she receives the sum assured if the policyholder passes away during the policy term. The policyholder can select any person for nomination. However, it can be noticed that most people nominate a close relative. The nomination rules are governed by Section 39 of the Insurance Act, 1938.
Here are all the things you need to know regarding nomination before you buy a life policy.
A nominee can be any person appointed by a life policyholder to receive the cover benefit in case of his or her death. Generally, children, spouse, parents, and siblings are chosen as nominees. Before the regulations were introduced, there was confusion about who could be a nominee to a life insurance plan. This is when the rule was introduced to mandate that being a legal heir does not automatically make anyone a nominee. The person has to be assigned by the policyholder in time of purchasing the cover or at a later stage.
The nominees can be canceled or changed at any point during the policy period. As a policyholder, you have the right to change your nominee multiple times as per your requirement. The nomination form can be downloaded from your insurance company’s website or you can take it from the nearest branch office. You need to update the personal information of the nominee by filling the form and submitting it to the insurer.
Once the nominee is changed, request your insurer for a written acknowledgment. It will leave no room for confusion when the nominee needs to file a claim.
If the life insurance nominee dies before the policy term is over, the insurance company cancels the nomination. In this case, the policyholder needs to submit a new nomination to assign a person who will receive the policy benefits. One thing that is to be remembered is that the nominee is eligible to receive the money only if the policyholder passes away before the policy term ends. In case the policyholder outlives the policy term, the insurance company pays the maturity benefit directly to the policyholder.
Nomination in insurance can be made when the policy is bought or at any later point during the policy tenure. If you want to nominate someone at the initiation of the policy, all you need to do is to mention the same in your policy form. In case you want to add the nominee later, you have to update it in the policy bond and sign it in the presence of a witness.
It is suggested that you decide your nominee in insurance very carefully. It should be a person who can be trusted with the money. This is why it is advisable to nominate a close family member.
- A Consumer Education Initiative series by Kotak Life