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For the Benefit of the Beneficiary

Chandralekha Mukerji   Delhi     Print Edition: October 2011

A lot of us overlook nomination details in insurance policies as just another formality. One reason for this is that it is not compulsory. However, proper nomination is important to ensure that your loved ones get the benefits of the policy without any hassle and enables fast processing of claims in the hour of need .

THE PROVISION
Section 39 of the Indian Insurance Act, 1938, provides for nomination of a person (called nominee) who gets the benefits of the policy on death of the person whose life has been insured.

Nomination can be done in policies where the proposer and the person whose life has been insured are the same. A nominee is usually chosen while buying the policy by providing details in the proposal form. However, it is possible to do it any time during the tenure of the policy.

"Nomination prevents disputes and delays in settlement of death claims. Thus, correct nomination establishes clear title to the policy at the time of the unfortunate event within the purview of policy conditions," says Pawan Mahajan, head-customer focus unit, Bajaj Allianz Life Insurance.

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Therefore, the only consideration while filling the nomination should be that the nominee is trustworthy and responsible enough to use the sum insured appropriately when you arn't around.

WHO CAN BE NOMINATED?
A nominee can be anyone-spouse, children, relatives, friends, even people who are not directly related to you. One needs to provide the insurer the person's details such as the full name of the nominee as it appears in his official documents, address, age and the relationship between the nominee and the policy holder.

Mayank Bathwal, CFO, Birla Sun Life Insurance
"If the nominee is a minor, an appointee is required since they are ineligible to receive claims directly."
However, nominating unrelated parties, that is, those who do not have an insurable interest in the life of the insured increases the risk for the insurer. Therefore, insurance companies usually avoid registration of unrelated parties as nominees.

When a nominee is a minor, an appointee needs to be assigned by the policy holder. "In case the nominee is less than 18 years of age, the policy holder is required to provide an appointee as, legally, minors are considered incompetent to enter into a contract and therefore ineligible to receive claims directly," says Mayank Bathwal, chief financial officer and head institutional sales, Birla Sun Life Insurance.

One can have also multiple or successive nominations. While multiple nomination means that the sum assured will be divided among several nominees, successive nomination implies that the claim money will be first paid to nominee A; failing him, the insurer will call nominee B; failing B, nominee C will be entitled to the policy benefits, and so on.

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SCOPE OF MODIFICATION
Since the nominee is required only in case of the demise of the insured, in case the nominee dies before the insured, the proposer is required to make a fresh nomination.

Nomination can be changed by filling up a simple form with information of the new nominee. This can be done any number of times during the tenure of the policy. The latest nomination supersedes all previous nominations.

NOMINATION VS ASSIGNMENT

Nomination does not deprive the insured of his disposing power over the policy but gives the nominee a bare right to collect the policy money in the event of his death. While, on assignment of life policy, all the right of the policy holder is passed to the assignee.

Policy Rights
While nomination is an authorisation to receive the policy monies in the event of death of the life assured, it does not give the nominee an absolute right over the money received, except to the legal heirs of the life assured. On the other hand, assignment of an insurance policy is a transfer or assignment of all rights and liabilities of the insurance policy in favour of the assignee.

Making the Agreement
Assignment can be effected either on the policy itself or by a separate deed. Nomination can only be made by endorsement on the policy itself.

Flexibility
An assignment once made is irrevocable. On the other hand, nomination can be cancelled or changed as many times as one wants to.

Insurer's Accord
Assignment of a life policy may be done with or without consideration from the insurance companies. Conversely, in case of nomination, a nominee cannot be made without consideration from the insurer.

Need for Verification
Attestation is requisite for assignment of a policy. However, no such provision is prescribed for making a nomination. In case of assignment, money under the policy is paid to the assignee, whereas under nomination, the insurance claim is paid to the nominee only if he survives the assured.

Dissimilar Benefits
On assignment, the wealth in the policy is passed to the assignee who has decision-making rights on the policy. Nomination confers on the nominee the right to receive the insurance money, hoever, it does not provide for the title or the ownership of the money. A nominee gets only a beneficial interest in the policy.
The last valid nomination form is required at the time of making these changes. A change in nomination will automatically cancel all previously executed nominations. The change or cancellation may be either by express words, or implied, for example, by gifting the policy money.

"A transfer or assignment of policy made in accordance with Section 38 of the Insurance Act will also mean cancellation of the nomination. While an assignment usually cancels a nomination, an assignment made in favour of the insurer, in consideration for a loan granted against the security of the insurance policy, does not cancel the nomination," says Rajiv Mathur, senior director and head-legal and compliance, Max New York life insurance.

After the application for changing the nomination is filed, one should not forget to get a written acknowledgement from the insurance company.

POLICIES WITHOUT A NOMINEE
In the absence of a nomination, the insurance company discharges the claim amount to the Class I legal heir, that is, to son, daughter, spouse and mother. If you have a will, the proceeds will be distributed according to the wishes that you have stated in your will. This is according to the Indian Succession Act, 1925.

Alternatively, the insurance company asks for a succession certificate by the court of law, which will clearly state to whom the amount should be paid.

"In case there is more than one legal heir, the insurer will call for a joint discharge statement, waiver of legal evidence and an indemnity bond. These documents safeguard the insurer's interest in case of any dispute on settlement of the claim," says Mahajan of Bajaj Allianz Life Insurance.

A small effort on your part today may save a lot of trouble for your loved ones later.

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