Life insurance is an essential investment for anyone who wants to protect their family's financial future in the event of an unexpected tragedy. However, the process of purchasing a life insurance policy can be confusing, especially when it comes to the concept of naming a nominee. In this article, we will discuss what a nominee is in life insurance in India, why it is important to name a nominee when purchasing a policy, and the different types of nominees available, and more.
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What is a Nominee?4 Types of Nominees in Life InsuranceChoosing a Nominee for your life insurance policyImportance of Naming a Nominee8 Things to consider while selecting a nominee for a life insurance planDifference Between a Nominee and a BeneficiaryExplore ACKO Life Flexi Term PlanConclusionFAQs
A nominee is a person who is designated to receive the benefits of a life insurance policy in the event of the policyholder's death. When you buy a life insurance policy, it is important to name a nominee to ensure that the benefits are disbursed to the intended recipient.
The nominee can be anyone - a spouse, parent, child, sibling, or friend. It is important to note that the nominee does not have to be a family member. Additionally, it can be changed at any time during the policy term, by submitting a written request to the insurance company.
Rajesh is a 45-year-old software engineer living in Bangalore with his wife, Sheela and two young kids. Rajesh wants to ensure his family is financially secure, so he purchases a ₹1 crore term life insurance policy.
He knows that if anything happens to him, his wife may struggle to manage the house and pay for their children's education on her teacher's salary alone. Therefore, Rajesh decides to name Sheela as the nominee in his life insurance policy.
This means that in the tragic event of Rajesh's passing away unexpectedly, Sheela, as the nominee, will receive the ₹1 crore sum assured directly from the insurance company. This payout can help Sheela settle debts, cover living expenses, and have enough money to continue funding the kids' education even without Rajesh around.
Appointing his wife, Sheela, as the nominee gives Rajesh immense peace of mind that his family will stay financially protected if he is no longer alive.
In the case of an individual nominee, you designate a single person, like your spouse, sibling, or child, to receive the policy payout. Naming an individual nominee keeps things clear on who'll get the money. But it also means if they were to pass before you, the funds would go through a legal process to determine the recipients.
You can nominate multiple beneficiaries to split the benefits between more than one person. Let's say you want 50% to go to your wife and 50% to be split evenly among your 3 kids. You'd list all 4 as nominees and the percentage due to each. This approach gives flexibility in distributing assets. However, upon the claim, each nominee has to provide proof of identity/existence before receiving their share.
Having a backup nominee can be useful. Contingent (or secondary) nominees come into the picture if the primary nominee passes before the policyholder. So you could name your spouse as the main nominee and a sibling as contingent. That way, your assets will stay with the family no matter what.
Naming a trust fund as a nominee allows better control over the distribution after you are gone. The trustee manages the corpus and can use it to care for dependents as you wish. Minors can't access a trust right away, so it prevents the money from getting squandered. However, the process and rules around trusts are more complex.
Typically, the process of nominating someone is completed while purchasing a life insurance policy. However, it can be altered during the policy term. Generally, people choose their immediate family members, such as spouses, children, parents, or siblings, as nominees.
As per Section 39 of the Insurance Act 1938, the policyholder is responsible for designating a nominee who would receive the coverage amount in the event of the insured's unfortunate passing. Thus, selecting the right nominee holds significant consequences for your loved ones. Understanding the nominee's meaning and implications is important before finalising your decision.
The nominee you choose must be someone you trust and have a close relationship with, as they will receive the benefit amount of your policy upon your demise. Here are some key rules to keep in mind when selecting a life insurance nominee.
Designating a nominee facilitates the timely processing of claims and ensures that the benefits are smoothly transferred to the intended beneficiaries. This can help speed up the settlement of claims during a difficult time and minimise legal hurdles.
Nominations allow policyholders to specify who should receive the insurance proceeds after their death, thereby avoiding potential conflicts among heirs. This ensures that the policyholder's intentions regarding the distribution of assets are respected and legally upheld.
Having alternate nominees provides a contingency plan in case the primary nominee is unable to fulfil their role. This helps prevent delays or complications in the settlement process and ensures that there is always someone authorised to manage the funds on behalf of the beneficiaries.
Here is a list of things to remember while selecting a Nominee for your Life Insurance Policy.
The first and foremost factor to consider is your relationship with the person. The nominee can be your spouse, parents, siblings, children, or any other family member. Choosing someone you trust and have a strong bond with is important.
The age of the nominee is another crucial factor to consider. If you choose an elderly person as your nominee, there is a chance that they might not be able to handle the financial responsibilities that come with the policy. On the other hand, if you choose a minor as your nominee, a guardian will have to be appointed to handle the policy until the minor comes of age.
Consider the number of financial dependents you have while selecting a nominee for your life insurance policy. Suppose you have a large family with multiple dependents. In that case, choosing a nominee who can manage the finances efficiently and distribute the benefits among the dependents as per your wishes is important.
The nominee's health is an important factor to consider while selecting a nominee for your life insurance policy. If your nominee suffers from health issues, it might be difficult for them to manage the finances and take care of the dependents in case of your untimely demise.
Check the nomination change procedure of your life insurance policy before selecting a nominee. If you wish to change the nominee in the future, it should be a hassle-free process without any complicated formalities.
While selecting a nominee, it is vital to consider their personal and professional background. The nominee should have a good reputation and no criminal record. Additionally, if the nominee is financially stable and has a good job, it will ensure they can handle the financial responsibilities that come with the policy.
It is important to communicate with your nominee and make them aware of the life insurance policy's details and benefits. This will ensure that they are prepared to handle the financial responsibilities and distribute the benefits as per your wishes.
Choosing a nominee with experience managing estates and distributing assets is important if you have a large estate.
The following table lists key differences between nominee and beneficiary in Life Insurance.
| NOMINEE | BENEFICIARY |
| A nominee can be anyone, including a family member, friend, or even a trust. | The beneficiary can be anyone, including a family member, friend, or even a charity. |
| The nominee has no legal claim to the assets, and cannot sell or transfer them. | The beneficiary has a legal claim to the proceeds, and can sell or transfer them if they choose to do so. |
| If the deceased has not left behind a will, the nominee may be appointed by the court. | A beneficiary is typically designated by the policyholder or investor when the policy or investment is set up. |
| The nominee can be changed at any time, and the process for doing so is typically straightforward. | The beneficiary designation can be changed at any time, but the process may be more complex than changing a nominee. |
Talking about nominees, the ACKO Life Flexi Term Plan is a unique term insurance plan. It is packed with useful features and promises to provide your loved ones with a financially stable future with the amount of money you choose for them.
Besides the flexibility to customise your coverage throughout the policy duration, you have the freedom to adjust your policy tenure according to your evolving needs. Additionally, managing your nominee details has never been easier – you can effortlessly add, delete, or update nominee information as required.
Selecting a nominee for your life insurance policy is a crucial decision. You can select an individual, multiple, contingent, or trust nominee according to your preferences. By making this choice wisely, you ensure your loved ones are protected, and your wishes are respected.
Here are some Frequently asked questions related to nominee
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