To avoid any misunderstandings, the family must consider the nomination clause with grave seriousness and update it accordingly, depending on the circumstances. In everybody’s best interest, this money will do the most good when received by the neediest party/parties.
Nomination in a term plan ensures that the policy benefits rightly reach the desired parties despite your demise. However, since term covers are very long-term covers, anything and everything can happen during such a long span.
Nomination in a term plan
The nominee is the term applied for denoting the legal custodian of concerning deposits. After the death of the insurance holder, the money is liable to go to the legal heir(s), depending on the desire of his/her desire.
Death of the nominee
Under any unfortunate circumstance, it may so happen that the legal heir or the nominee of the insurance holder passes away before the insurance holder. In such cases, the nomination gets automatically cancelled, and the policyholder must change the nominee. But receiving the claim amount maintains a legal process and takes some time. If the nominee dies after the death of the insurance holder, but before the completion of this legal process of receiving the money, then the legal heir is liable to receive it.
Nominee Eligibility
Any family member who is financially dependent on the policyholder and will be adversely affected in case of your unfortunate demise can become your nominee. Legally, you cannot nominate any distant relatives, strangers, friends, or non-family members, except with proper proof of their financial dependency on you.
Beneficial nominee
A beneficial nominee is termed to those legal beneficiaries who can claim the sum assured after the death of the policyholder in case there is no existence of any other legal heir claims. While purchasing a term plan, you have to specify the names of beneficial nominees and multiple of them, clearly stating the percentage of the allocation of the total sum assured.
Appointing minor nominee
You can even appoint any child/children as a beneficial nominee in case of a term insurance plan. Under general circumstances, a lot of significance of a term plan lies in securing the future of the child. However, any child below 18 years of age is considered a minor and is legally not permitted for money management. As long as the child/children turn(s) 18, a legal custodian needs to the appointed till that time.
Changing the nominee
In case the nominee dies before the policyholder, depending on the terms of the plan, changing the nominee is possible. Once the nominee is changed, all the previous nominations automatically get null and void by the current nomination.
Important features of term insurance beneficial for nominees
Some of the basic features of term insurance that have been proven to be most beneficial for nominees include:
- Option for a preferable claim payout
- Increasing the life coverage
- Cover for any non-working spouse
- Premium affordability
- Purchase ease
- Premium waiver benefit.
- In case of non-declaration of nominees
In case the concerned policyholder has not nominated any person, a standard and well-established legal procedure are followed to avoid any misunderstandings or legal issues in future. The father, the mother, the spouse, and the offspring are classified as first-class legal heirs of the concerned policyholder. In case of non-declaration of the nominee, they are eligible to receive the death benefit on the demise of the policyholder. Under such circumstances, the death benefit gets distributed as per the clause mentioned in the Indian Succession Act of 1925.
Conclusion
In order to avoid any misunderstandings between the nominees and the legal heir(s) after the death of the policyholder, it is best to nominate a family member. However, practically that is not always possible and the concerned insurance holder is eligible to change the nominee(s) and legal heir(s) as many times as he/she desires. Once the new nominee(s) or legal heir(s) is updated, the older ones automatically stand invalid by the latest development. Therefore, in case of nominee change, always ensure to keep the developments well-informed to the concerned insurance company, to avoid any future misunderstandings or disputes.
Also Read: Why is the Solvency Ratio of Term Life Insurers Important?
