What is meant by a nominee in a term insurance policy?
Life is unpredictable and the death of an earning member can lead to financial troubles. Moreover, major illnesses can result in high expenses, and buying a term life insurance plan can give a safety net. This is because term life insurance plans offer high coverage at small premiums for policyholders to lead a less stressful life. But choosing the right plan which caters to his/her needs is what makes it worth it.
Since a term insurance plan uses different terminologies, customers should know them in detail that will help them proceed further. A nominee is one such term that a policy buyer should understand well to create a sound financial plan.
What is a nominee in term insurance plans?
As we grow old our responsibilities grow too. And it is human nature to try and provide protection to the family in every way. That is why individuals start planning their investments after a certain point in life. And it makes sense to appoint a person to receive the benefits in case of any unfortunate turn of events like the death of the policyholder. Thus the concept of providing nomination in insurance with the objective that the nominee will receive the financial benefits of the insurance plan to take care of the financial needs of self and family.
Knowing the different types of Nominees
Now that you know what is nominee let us try to understand its different types –
- Beneficial Nominees: As per the IRDA laws, a beneficiary nominee is a person appointed by a policyholder who looks after his/her account. A person can choose parents, kids, spouses, and siblings as beneficiary nominees after purchasing an insurance plan. Only the beneficial nominees will receive the death claim and not any other legal heir. Moreover, a policyholder can appoint only family members as beneficiary nominees.
- Minor Nominees: Anyone who is below 18 years comes under a minor nominee category. Most people will appoint their children as minor nominees to secure their financial future when they are not alive. On the other hand, a policyholder should appoint a custodian to handle the claim amount in case of death. An insurance company will pay the claim amount to the custodian who manages the insurance claim amount until the minor becomes a major.
- Non-Family Nominees: A non-family nominee is a distant relative or friend who can claim the amount after the death of a policyholder. However, many insurance companies don’t accept a stranger as a nominee because it might lead to legal hindrances. Can a friend be a nominee in life insurance? The answer is no and an insurer will reject or refuse a non-family nominee and ask for further explanations.
- Multiple Nominees: A policyholder can add multiple nominees to a policy as per the law. He/she can even specify the portion of the death benefit for each nominee. If that option is not exercised, then policyholders will divide the pay-out amount equally among all the multiple nominees.
- Changing Nominees: Insurance companies allow policyholders to change their nominee/s during the policy term based on their choice. At the same time, it is important to make sure that the details are up to date while making changes. Although a policyholder is free to change the nominee as many times, an insurer will consider the last one updated.
When to choose a nominee?
Anyone who wants to secure their family from financial losses can select a term insurance policy. He/she can also calculate the adequate coverage required for the children and family to lead a comfortable life in case of their sudden and untimely demise. A policy buyer should understand the terms and conditions including the difference between a nominee and legal heir that will help to make an informed decision when choosing a nominee for their policy.
A nominee is a custodian who has the right to claim the assets after the death of a policyholder. He/she is only a guardian and not the owner of the assets. On the other hand, a legal heir is a successor of a family and can claim the assets of a deceased person. A legal heir can become a nominee at the will of a policyholder. Minor children have guardians to take care of everything after the demise of a policyholder till they become an adult.
Things to consider while appointing a nominee in insurance
- A nominee holds considerable value in an insurance policy and policyholders should know more about the. nomination in insurance and seek clarity from the insurer in case of any query.
- Inclusion of spouse and children and whether the laws permit it or not.
- Policyholders should appoint a guardian when the nominee is a minor.
- One should mention the full name, address, age, and relationship to a nominee.
- A policyholder should determine who can be the nominee after knowing the complete details.
A term insurance plan is a right option for those who want to safeguard their families from financial constraints. At the same time, a policyholder should know what is the meaning of a nominee and what a legal heir is to avoid legal obstructions. While appointing legal heirs as nominees in an insurance policy, a policy buyer should consult with industry experts including advocates. This, in turn, gives ways to include a nominee as per the laws to experience peace of mind from disputes and other problems.