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Declare beneficial nominees while purchasing life insurance

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Did you know that when an insured person dies, his/her nominee becomes the receiver of the claim amount? He cannot use that money by himself unless he is a legal heir. However, suppose an policyholder has appointed a beneficial nominee while purchasing insurance, he/she becomes the end consumer of the claim amount.

It is essential to appoint a nominee for all your assets, investments and insurance policies. This practice ensures that the proceeds go to the rightful beneficiary. If the nominee is a minor, the insured may appoint or designate a person to receive the money on the nominee’s behalf if the insured person dies.

“Generally, children below 18 years of age are not considered eligible to handle claim amounts. Hence, the insured needs to assign an appointee or custodian. So, if any claim arises, the claim amount is paid to the appointee for custody till the minor turns a major,” said Naval Goel, founder and chief executive officer, PolicyX.com.

Beneficial nominee: According to a new rule, nomination has been made mandatory while purchasing life insurance. Nominees such as parents, spouses and children are now considered beneficial nominees, while previously, they were mere receivers. When an insured mentions any beneficial nominee in the proposal form, the claim proceeds get undisputedly shared with them.

Sanjiv Bajaj, joint chairman and managing director, Bajaj Capital, said, “An insured may nominate a person who is entitled to receive the death proceeds in a life insurance policy. However, the nominee may not have the right to use the proceeds, and is only a caretaker of the money on behalf of the legal heirs of the insured… If the insured declared his parents, spouse and children as nominees, they will be considered as beneficial nominees and will be beneficially entitled to the death proceeds of the life insurance policy.”

Hence, it is essential that only immediate family members are appointed as beneficial nominees. If an insured names any one of them as nominees in a policy, they automatically become beneficial owners of the claim benefits. This simply means they are the final, undisputed beneficiaries.

You must also know that if the insured has not granted such a beneficial title to the nominee regarding the nature of his title, then the said nominations (spouse, children or parents) will not be considered a beneficial nominee.

The new clause also gives the insured the option of naming multiple nominees and specifying their exact share in the policy. Previously, in India, life insurance firms would provide claim proceeds to the nominee, from whom the rightful legal heir could claim the benefits. The insurer now pays policy benefits only to beneficial nominees. Thus, it is prudent to understand the significance of life insurance “beneficial nominees” and declare one to avoid conflict.

Changing nominees: You must understand that the nomination process has to be up-to-date and in sync with whom the insured person wants to appoint as the beneficiary. It can be revoked or changed as many times as the insured may want to, but the last nominee supersedes all previous ones. The changes can be done any time during the policy term by making an endorsement.

An insurance endorsement is an amendment or addition to an existing insurance policy that changes certain terms of the original policy. It can be done at the time of the policy purchase, mid-term or at the time of renewal.

This way, you should always ensure that you have the right person as your beneficial nominee. This will help avoid disputes in the future and ensure that the claim amount is paid only to those you nominated as beneficiaries.

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