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