Choose the Nominee of a Term Life Insurance Plan Wisely

It is important to insure yourself with a life insurance policy to keep yourself protected from the uncertainties of life. You never know what might happen to you tomorrow and it is best to have a term life insurance to ensure the financial protection and security of your loved ones. When you purchase a life insurance policy, you will be asked to add a nominee for the plan. You need to know the importance of nomination to make the right decision.

What is a ’beneficial nominee’ in a term life insurance plan?

As explained above, you need to add a nominee in your life insurance plan. The nominee will have a legal right to the sum assured received from your insurance plan if something untoward happens to you. According to the Insurance Laws (Amendment) Act, 2015, there is a concept of ‘beneficial nominee’. When you nominate your spouse, parents, or children in your insurance plan, the insurance company will pay the death benefits to the nominee who is known as a ‘beneficial nominee’. Any other heirs will not have any right to claim the insurance money. Online term insurance plans, which have a maturity after March 2015, will have to abide by these rules.

Why you need to be careful while choosing the ’beneficial nominee’

Whenever you buy a term plan, you need to be very careful about who you nominate in the policy. It is assumed that you know what you are doing when you nominate the parents,
children, or spouse as a nominee to lump sum received from your insurance policy. The nomination is as good as a will and your beneficial nominee will receive the death benefits without having to go through any legal process. It can be harmful and stressful if you are careless when choosing the nominee. If you want to ensure that the intended benefit of the policy reaches the right person, you need to nominate them as a ‘beneficial nominee’. As per old rules, a nominee could receive the death benefit only at the time of the death of the
policyholder. These rules have been amended and in case of an endowment life insurance plan, the nominee can collect the maturity benefit of the plan. If there is a scenario wherein you survive the policy term but are unable to collect your insurance plan’s maturity amount due to an unfortunate incident, the ‘beneficial nominee’ will get that sum assured.

You are well aware of the importance of a term life insurance plan but you also need to be mindful about choosing the right beneficial nominee for your plan. You can
add more than one nominee in insurance and can change the person multiple times. The recent nomination will supersede the previous ones. It is important to access the policy and the nominee at regular intervals to ensure that the purpose of investment is achieved. You do not want your savings to end up with someone who is not your preferred nominee. Hence, pay very close attention to who you choose as a nominee. You must remember that in case of an untoward incident, the death benefit will be handed over to the recent ‘beneficial nominee’ mentioned in the policy documents.