Tips for Choosing a Nominee for your Term Insurance Policy
Have you ever imagined how it would be for your family members when you are no more? If this thought scares you, then it is time you start planning for your family’s secure financial future immediately. The simplest way to prepare is buying a term insurance policy that will not only protect you during your lifetime but takes care of your loved ones in case you encounter an unfortunate event like death.
Ramesh Powal is a chartered accountant running his own CA firm. He was also a real estate investor and had bought quite a few plots around the city. He was living with his wife and two young daughters. To make sure his family is safe even after his death, Mr. Ramesh had bought a term insurance policy for Rs 5 crores after considering the expenses required for their living in the future. He had registered his wife as the nominee to receive the benefit amount in case of his unfortunate death.
Mr. Ramesh was diagnosed with COVID-19, and despite all efforts, he passed away. His family was completely devastated by the loss, but since he had informed his wife about the term plan, she was able to submit a death claim request to the insurance provider. Since she was the nominee, the company also released the benefit amount to her, which now will be very useful for the daughter’s education and regular expenses.
Nominee and Nomination:
When you fill the term insurance policy application, there is a separate section asking for the nominee details. Some do not pay attention to this, thinking it as irrelevant, but when you are availing a term insurance plan for an assured amount and encounter death during the policy tenure, the insurance provider pays that amount to the nominee whom you have nominated in the policy application.
Who is a Nominee?
A nominee can be anyone that the policyholder prefers to be handed the financial benefits. Typically, it is either their parents, spouse, or children appointed as the nominee.
Guidelines for Choosing a Nominee in Term Insurance
The guidelines for choosing a nominee are the same across all insurance products, and there are no specific term insurance nominee rules. However, as per the latest amendments made to the Insurance Laws (Amendment) Act, 2015, a new term called ‘beneficial nominee’ has been introduced who is none other than your parents, spouse, or children. If they are mentioned as notified in your policy, the benefit amount shall be paid to them. So even if there are other legal heirs, the insurance money would not be paid to them. This is done to reduce any family disputes between the nominee and legal heirs.
If the policyholder prefers, he/ she may also appoint multiple nominees for the benefits to be shared in any proportion that may deem fit. On the policyholder’s demise, the sum assured shall be divided to the nominees according to the share ratio mentioned in the policy.
While filling the policy document, you will need to furnish the following information about nominees and attach supporting documents to record your preference.
Relationship between the policyholder and the nominee:
If you fail to provide the nominee details in the policy application or if the documents are not proper, the insurance company shall give the claim amount to class I legal heirs, who are the insured’s spouse, son, father, or mother.
Can we change the nominee in term insurance?
Yes, the nominee can be changed as many times as he/she wishes until the policy’s maturity date. To change the nominations, the insured needs to fill the “Change of Nomination Form” provided by the life insurance provider and submit it on time for the change to come into effect. It is also necessary to obtain an acknowledgment from the insurance company for the change of nominee name to avoid any complications in the future over the claim settlement process.
What happens if the nominee Dies in Term Insurance?
There are circumstances where the nominee that a policyholder has nominated in their term plan might die even before the policy tenure is completed. In such cases, the benefits are passed on to the legal heir of the policyholder.
You might tend to spend a lot of time choosing the right insurance policy. Still, an equal amount of time should also be devoted to deciding your term insurance nominee because nobody would want their family to suffer by making them running from pillar to post to get their death claim request approved.
Important of Nomination:
While you are looking to select the best term insurance policy, it is required to decide on the people who will have access to the benefit amount and how it will be utilized. Most people just focus on the right plan and ask the insurance agent to fill in other details, but such a practice is sure to throw up problems at the time of claim requests.
Sit with your partner and discuss the term plan you are going to buy, the coverage amount, and how that money can be spent. If you have grown-up children, engage them in the conversation too, and make them aware of their duties and responsibilities when you aren’t going to be in this world.
The assets you had built over the past years are to be managed by your family members soon, and an open conversation with them will facilitate a smoother proceeding of events. But many family disputes are reported to take place during the process of dividing the benefit amount among heirs.
A peaceful settlement is made possible if you can adequately plan for the uncertainties in advance, choose the suitable nominee and assign the sum assured in a way that everyone’s interests are fulfilled.
By following these methodologies, one can create a safe environment for yourself and your family members to know about the policy, its terms, and the effects of not following the rules.