Kenneth Mathew 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 the death. Unfortunately, Kenneth and his wife were killed in a car accident. Kenneth’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 Kenneth’s wish.
Who is a nominee?
A nominee is an individual appointed by the policyholder to claim the death benefit of a term insurance policy, in the event of the insured’s death. The nominee or the beneficiary 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 wellbeing 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 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 name by allocating a fixed percentage of the sum assured 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
Many a time, the policyholder is inadvertently prone to making few errors in terms of nomination during policy purchase that can cost him dearly if not corrected quickly. Here are some of those critical nomination scenarios that need to be addressed as soon they come to the insured’s notice:
Single Nominee Syndrome: Most policyholders provide a single nominee name since they do not even want to have more than one. If the policyholder does not update the nominee details in the event of the existing 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 sum assured to each of the nominees.
Minor Nominee:If the policyholder fails to appoint a custodian to a minor nominee of less than 18 years age), the claim process cannot be initiated, and the minor shall not receive any financial death benefit. So, the policy holder is not only duty bound to appoint a custodian but also submit fully verified details of the custodian to the insurer, failing which the financial benefit shall be passed on to the custodian instead of the minor.
Nominee details not updated: The policyholder must immediately update the nominee’s existing details that include name, address and other relevant information periodically. It holds true even more when the current nominee dies during the policy term.
Lack of information to the nominee: The nominee must be kept aware and the insured must share the policy details with the nominee, so that the nominee shall not fail in submitting the claims to the insurer within the stipulated time.
Misconception of nominee rights: A nominee might assume that he’s the sole claimant of the policy’s death benefit in the case of insured’s death. However, if the nominee name and the legal heir mentioned in the succession will by the insured are different, then the legal heir is the ultimate claimant of the policy death benefit. If the policy holder wishes that the nominee must have absolute rights over the policy benefits, he must get a will prepared conferring absolute rights to the policy nominee over the death benefit.
Know a few more things that you should do so that your claim is not rejected
How can we change nominee in term insurance?
Given that common errors can occur in the policy nomination process, knowing that we can change the nominee in term insurance is important. The policyholder might face a situation where the nominee would have expired before he did, or there is a loss of belief in the current nominee, triggering a change of nominee name by appointing a new nominee. There is no limit to the number of times for a change of nominee of a term policy (for certain insurers). 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:
The policyholder must duly fill the change of nomination form that’s available with the insurer, either online or offline.
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 and the new nominee being endorsed.
The policyholder must obtain an acknowledgement from the insurance company for the change of nominee name to avoid any discrepancy during claim settlement process in the future.
In order to avoid any rifts within the family over the entitlement of policy benefits, it is safe to have more than one nominee with their absolute rights over policy benefits also included in the will prepared as per his wishes. Choosing a right term insurance plan such as the Future Generali Flexi Online Term Plan that allows for an online update of nominee details in accordance with section 39 of the Insurance Act, 1938, is beneficial and can prevent any confusion or disturbances on distribution of policy benefits within the family members.