What is Nominee?

If you plan to purchase life insurance, it is essential to understand what is nominee and how it can affect your policy. In essence, the purpose of securing life coverage is to provide financial protectio

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What is Nominee in Life Insurance?

At a certain point in life, it becomes necessary to plan your investments. For most people, life insurance is a priority when it comes to major financial decisions. It allows you to solidify the shield of financial protection around your family members. It is crucial to infer the nominee meaning for you to take proper advantage of the policy.

Nomination is the process of determining one person or persons who will receive the benefits from the life insurance policies in case of any casualties. The nominee in life insurance can be anyone, per the policyholder's choice. In general, the nominee in insurance is a close relative.

Also Read: What is Insurance?

Who Can You Choose as a Nominee?

Under Section 39 of the Insurance Act 1938, it is up to the policyholder to assign the nominee in insurance. The person will be eligible to receive the cover benefit of the policy in the event of the insured's demise. Hence, it is a decision that bears substantial implications in your life. Once you know the nominee meaning and its consequences, it is easier to make the final decision.

The nominee's appointment is made when purchasing the life insurance policy or can be changed within the policy term. Typically, most people choose their spouse, children, parents, or siblings to be the nominee in insurance.

Different Types of Nominees

As someone purchasing a life insurance policy, it is important to know the nominee meaning in different contexts. Here are some of the types of nominee in an insurance policy that can receive the benefits from the claim towards settlement.

1. Beneficial nominees

When it comes to matters of insurance, there is a possibility of several legal disputes. At the time of the death benefit pay-out, it is mainly a concern if the nominee in life insurance is not the insured's successor.

In the past, there have been incidents where the policy clearly states another nominee to receive the death benefit but has to face complications because of a legal heir. Hence, the IRDAI introduced the concept of 'Beneficial Nominee' in to prevent such a situation.

It states that when a policyholder has designated a close relative, similar to companion, guardians, or kids, as the nominee in life insurance, they become the policy's beneficial nominee. If a policy has a beneficial nominee determined beforehand, no other legal heir can claim the insurance proceeds

2. Minor nominees

The nominee meaning for most people is uncomplicated as they want the proceeds to go to their children. Naturally, it is a preferred choice because the policyholder is responsible for their future..

One of the primary reasons behind securing a significant amount of coverage is to cater to your child's different needs in your absence. But, if your child is below the age of 18 when appointing them as the nominee to life insurance, it is a slightly different procedure.

The nominee meaning in such a scenario remains the same; however, you must assign a custodian for them. In case of an unfortunate incident during the minority of the nominee, the claim will be payable to custodian until the nominee becomes an adult.

3. Non-family nominees

While it is possible to select a non-family member as the nominee for life insurance, it is generally not advisable. There are several reasons why such scenarios can alter the nominee meaning and affect the process of death pay-out.

4. Multiple Nominees

The nominee meaning does not necessarily have to be limited to one person. It is possible to select multiple individuals as nominees under life insurance. Furthermore, you can specify the portion of the death benefit that each nominee is eligible to receive. Under no such provision, the insurer may go forward and divide the pay-out amount equally among the nominees.

5. Changing Nominees

Insurers allow the policyholder to change the nominee, meaning that they can choose a different person to receive the benefits during the policy tenure. It is essential to make sure that these details are up-to-date with ongoing life changes.

You are free to change the nominee as many times as you wish, but the last change will take precedence over the others. For changing what is nominee in life insurance, you are required to fill and submit the nominee form either online or offline. You also need written acknowledgment of the change from the insurer.

Is Nominee Different from Beneficiary?

If you are to understand the nominee meaning appropriately, it is vital to know how it is different from a beneficiary. The nominee meaning in life insurance refers to a person's legitimate right on the proceeds of the policy.

Apart from the person or persons mentioned as the beneficial nominee to life insurance, no one can avail of the benefits. As per the Insurance Laws (Amendment) Act, 2015, the mentioned beneficial nominees are entitled to the amount payable by the insurer.

When to Choose the Nominee?

When you decide to protect your family's financial future, it is essential to calculate the adequate coverage required for them. The procedure requires you to understand the terms and conditions, including the nominee meaning. After becoming aware of the nominee meaning and its implications, it is advisable to move forward with the purchase.

More often than not, the time to determine who and what is nominee benefits is at the policy's inception. However, you can change the nominee in insurance once the policy is in force as well. As mentioned earlier, it is up to the policyholder to decide what is nominee meaning in terms of their particular financial situation.

Your preferences may shift with time, and you feel the need to change the person chosen to receive the benefits. Hence, you have the option to change him or her throughout the policy term.

Things to Consider While Selecting a Nominee

After careful consideration of the nominee meaning, it is in your best interest to remember the following points.

The nominee meaning in life insurance holds considerable value. Analyse if the coverage amount would be enough for your nominee
Understand what is nomination process to avoid any disappointments in the future.
In case you feel dissatisfied with your choice of the nominee in life insurance, it is possible to change it anytime during the policy course

Frequently Asked Questions (FAQs)

ARN: May21/Bg/25A

Sources:

1. https://www.policyholder.gov.in/Know_your_Rights_and_Duties.aspx

What is Nominee?

What is Nominee in Life Insurance?

Who Can You Choose as a Nominee?