Amit Kumar is a wealthy realtor who has accumulated vast amounts of assets and money from a lucrative business and financial investments in his lifetime. He has two sons and a daughter who are married and well-settled. Twenty years ago, he bought a term insurance policy cover worth Rs. 10 crores and nominated his wife as the beneficiary in the event of his death. Unfortunately, Amit and his wife were killed in a car accident. Amit’s children learnt of the term insurance cover after their parents’ demise, and since the nominee wasn’t alive, the death benefit was distributed between them on the basis of the legal succession Will prepared in accordance with Amit’s wish.

Who Is a Nominee?

A nominee is an individual appointed by the policyholder to claim the death benefit of a insurance policy, in the event of the insured’s death. The nominee or the beneficiary’s name is endorsed by the policyholder in the proposal form during the purchase of the term policy. A nominee must generally be someone whom the policyholder can fully trust to take care of the claim money and utilize it for the insured's family's financial well-being in case of the demise of the policyholder. Thus, one needs to be extremely careful while choosing a nominee who can be absolutely relied upon. It is advisable to choose as a nominee, any immediate family members like spouse, children, parents, or a close relative who can take care of the family’s financial needs.

The policy holder can nominate more than one nominee by allocating a fixed percentage of the benefit between the multiple nominees. If the policyholder does not choose the nominee at the time of purchasing the term policy, it can also be done later by informing the insurer in writing.

Common Mistakes of Policy Nomination

Policyholders often inadvertently make errors while filling in the terms of nomination during policy purchase. These errors can cost them dearly if not corrected quickly.

Here are some of those critical nomination scenarios that need to be addressed as soon as they come to the insured’s notice:

    • Single Nominee Syndrome:

Most policyholders provide a single nominee name since they do not want to have more than one nominee. After the death of the policyholder, if there is only one nominee and in case of the nominee’s sudden demise, the claim settlement process can only be complicated further with the insurer trying to identify the legal heir of the insured. This is a time-consuming process that could be avoided by naming more than one nominee and allocating a certain percentage of the sum assured to each of the nominees.

    • Minor Nominee:

In case the policyholder chooses a minor (less than 18 years age) as a nominee, then he/she should also appoint a guardian/custodian and provide their fully verified details. If the policyholder fails to appoint a custodian to a minor nominee, then at the time of settlement the claim process cannot be initiated, and the minor will not receive any financial death benefit.

When a guardian is appointed, then at the time of settlement, the sum assured will be paid to the guardian/custodian for safekeeping. The day the minor turns 18, the guardian is legally obligated to pay the minor the money. Since the future of minor will be dependent on the guardian/custodian, it is advised to choose a guardian carefully.

If the minor becomes a major during the term of the policy, then the policyholder should remove the guardian’s name from nomination.

    • Nominee details not updated:

The policyholder must immediately update the nominee’s existing details which include name, address and other relevant information periodically. If the nominee dies during the policy term, then the details need to be updated quickly and the insurance company should be informed at the earliest.

    • Lack of information to the nominee:

The nominee must be made aware of the term plan and the insured must share the policy details with the nominee, so that the nominee does not fail in submitting the claims to the insurer within the stipulated time.

Know a few more things that you should do so that your claim is not rejected:

Can we change the nominee in term insurance?

Yes. we can change the nominee in term insurance. In fact, there is no limit to the number of times a nominee can be changed in a term policy (for certain insurers). Usually, the nominee is changed when the nominee dies before the policyholder, or the policyholder doesn’t trust the nominee or has a loss of belief in the current nominee. These events trigger a change of the nominee name by appointing a new nominee.

How can we change a nominee in a term insurance?

The process to change the nominee name of a term policy is a simple one. Here’s a step-by-step guide for change of nominee of a term insurance policy:

  1. The policyholder must duly fill out the change of nomination form that’s available with the insurer, either online or offline.
  2. The completed nomination form along with a copy of the policy document must be furnished to the insurer for updating the nominee details. The policyholder is liable to convince the insurer of the relationship between him/her and the new nominee being endorsed.
  3. The policyholder must obtain an acknowledgement from the insurance company for the change of nominee name to avoid any discrepancy during the claim settlement process in the future.
  4. The nominee should be close blood relative to the policy holder – such as spouse, children who have insurable interests. “Insurable interest refers to an investment that protects anything subject to a financial loss. A person or entity may have an insurable interest in an event, item, or, action when the loss or damage of the insured object or person can cause a financial loss.”
  5. If the nominee is minor (below 18years of age), the policy holder needs to submit the appointee details who will be the natural guardian of the minor nominee. In absence of natural guardian, then policy holder to submit the details legal guardian of the minor nominee.
  6. KYC of nominee and appointee (if any) should be submitted by policy holder.