Q+A: Nominee in life insurance policies

A man shows balloons in the colours of the Indian flag to his child at a market during India's Independence Day celebrations in the northern Indian city of Chandigarh August 15, 2008.

When you take a life insurance policy, you are required to nominate someone as a nominee. Who is a nominee, how can the policy holder nominate someone, what should you keep in mind when nominating someone…these are some questions that the following article answers for you.

Who is a nominee?

A nominee is the person who will receive the proceeds of the policy if the insured person dies during the term of the policy. A nominee has no right in the proceeds of the policy, except as a trustee holding the proceeds on behalf of the legal heirs of the insured.

A nominee exists only for convenience purposes so that the proceeds can be transferred to the legitimate beneficiaries.

If a nominee is also one of the legal heirs, then the nominee can take their own proportionate share as entitled to them under the prevailing law, and pass on the balance to the other legal heirs.

It is recommended that you appoint someone as a nominee at the time of buying the policy, though you can do the same later on as well.

Can I only nominate my immediate family?

The proceeds of the policy are meant for the welfare of your family in your absence. Usually, insurance companies have a preference for immediate family members to be your nominees (like spouse and children).

However, you can choose even non-family members as a nominee. If you choose a non-family member, you will likely be required to show to the insurance company that your chosen nominee has an insurable interest in your life (simply put, demonstrate that their life will be financially affected if you are not around).

What if I want to nominate my child who is a minor?

If you wish to nominate your “minor” child, you will need to name another person as an appointee. Your child’s date of birth, the name of his/her natural guardian and the nature of the relationship with the guardian will have to be specified.

How can I select a nominee? What details are required?

At the time of applying for a policy, the insurance company will provide you with a nomination form to fill up. In that form, you have to give all the details of the nominee.

The details of the nominee typically include his/her name (any alias he/she carries so that there will be no ambiguity in case two people in the family share same name), age, address and his/her relationship with you.

Can I appoint more than one person as a nominee?

Yes, you can appoint multiple nominees such as your parents, your spouse and your children. If they are your legal heirs, you can also specify their percentage share in the policy proceeds.

Can I change my nominee?

Yes, a nominee can be changed till the maturity date. To change the nomination, you need to fill up “Change of Nomination Form” provided by your life insurance company. Also, you are not obliged to give prior notice to the previous nominee and the nominee cannot influence the change independently.

What if I don’t have a nominee?

In case you do not have a nominee, then the usual personal laws of succession applicable to your family will apply.

What if I have a Will, who will get the insurance proceeds?

In case you have a Will in which you have specified the beneficiary of your insurance proceeds, then the Will takes precedence over any nomination that might have been made. As stated above, the nominee is a mere trustee holding the proceeds on behalf of the legal heirs. A nomination is not a mode of making a bequest.

What if I don’t have a Will, can my legal heirs claim the proceeds?

Sure. If you don’t have a Will, your legal heirs can still lay a claim on the proceeds from your policy. As stated above, your nominee is a mere trustee holding the proceeds of the policy on behalf of the legal heirs.

What rights does a nominee have?

A nominee is entitled to receive benefits from the insurance policy, only after the insured’s death. If the insured outlives the term of the policy, the nomination will stand cancelled.

A nominee receives the proceeds in their capacity as a trustee for the legal heirs of the insured. The proceeds don’t belong to the nominee unless the nominee is also a legal heir.

Illustrative Example

Insured: Raj

Nominee: Raj’s mother

Legal heir in Will: Anil, Raj’s 20 year old son

In the unfortunate situation of Raj’s untimely death, Raj’s mother can receive the proceeds from the insurance company. However, Anil who is Raj’s legal heir is the ultimate beneficiary and Raj’s mother is holding the proceeds as a trustee on behalf of Anil.

If Raj’s mother is also specified as a beneficiary in Raj’s Will, then she will share in the proceeds up to her proportionate share as specified in Raj’s Will.

Copyright 2009 iTrust Financial Advisors Private Limited. All rights reserved.

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