A term insurance plan provides a financial pay-out to the intended recipients if the policyholder passes away during the policy duration. As long as the conditions of the plan are being met, the insurer will ensure that the sum assured as decided by the life insured shall be paid to the rightful person. The person to whom the sum assured is given is called the term insurance nominee. Many people often get confused as to what exactly the concept of the nominee entails, whom one should choose as the nominee, how to go about it, and so on. A deeper understanding of these topics is important as it helps one ensure that their financial planning results in the right direction.
Understanding the ‘nominee’ and its legal aspects
A nominee is a person whom the policyholder chooses at the time of purchasing the term insurance policy, as the recipient of his/her death benefit payout. One can choose any individual they know as the nominee. It may be their friend, spouse, parent, sibling, or even their children. Most people usually stick to their close family members when it comes to selecting the nominee to ensure that the regular payment of the term insurance premium unanimously falls into the right hands.
It is also important to get the differences between the nominee and the legal heir clarified. The nominee receives the sum assured. However, it is not always necessary that they are entitled to keeping the sum assured. Prevalent laws state that if a will mentions an individual as the legal heir of the term policy, then that individual’s entitlement supersedes that of the appointed nominee for the sum assured. Nomination of an individual outside of the family may also lead to disputes between the nominee and the family members, who may be legal heirs, when it comes to receiving the sum assured.
One can resolve this by entitling the outsider term insurance nominee as the legal heir in their will. Or, one may simply choose a parent, spouse, or child as the beneficial nominee of the term insurance policy.
You are prepared to buy a term insurance policy now. You have used the term insurance calculator and estimated the premium and have read on the concept of nominees as well. Now, the question arises: what is the procedure to select a nominee?
How to choose the nominee?
Fill out the appropriate form
When buying a term insurance policy, you will be provided with a section that requires data pertaining to the nominee/s. Usually, the name, age, address, and the relationship that you share with the nominee would have to be given.
Attach relevant documents
The insurer might ask you to provide documents related to the nominee. This can help them confirm the nomination.
Submit the form
Before you submit the insurance nomination form, ensure to fill in the correct information and double-check it so as to eliminate any plausible errors.
Points to remember about the nomination process
One can choose multiple nominees
You can choose your spouse and your parents as the nominees. In this scenario, you would have to specify the share of the sum assured that you would like to distribute to each nominee.
You can change the nominee
If you have been paying the term insurance premium regularly, you have the right to change the nominee during the policy duration. Your relationship may have changed, or they may have passed away, or you simply wish to add or remove a nominee. This can be done so after carrying on the due documentation and explaining to the insurer your reasons for changing the nominee.
A minor can be appointed as the nominee
If a policyholder wants, they can appoint a child or an individual under 18 years of age as their nominee. An appointee/ custodian would have to be provided in this situation. They would be the ones to receive the financial benefit until the nominated individual turns 18. If adequate information about the custodian is not appointed to the insurer, the sum assured may be withheld.
If you are not sure about the amount of sum assured you should ideally choose, you can take the help of a term insurance calculator. This helps you estimate how much premiums you would have to pay for how long to reach the sum assured goal for your nominee.
We hope the information provided here helps you immensely during the nomination process.