A Life Insurance Plan is devised to secure a person’s life and her/his family’s. The insured person pays certain amounts at intervals of time to the insurance company during the tenure of the policy. After the end of the tenure, the sum of money deposited, along with other benefits are given to the person(s), i.e. the nominee on behalf of the deceased. But, who is a nominee? What role she/he plays in a life insurance plan of the policyholder? How a nominee should be related and are there any restrictions to nominating? We will find answers to all the questions about a nominee in a Life Insurance Plan in this article.
What is the objective of a Life Insurance Plan and who is a nominee?
A Life Insurance Plan involves two parties: the policyholder and an insurance company. It is a financial agreement where the insurance company guarantees to pay the nominated person on behalf of the policyholder, called the nominee, due to the demise of the policyholder or after a stipulated time period. Meanwhile, the insurer or the policyholder has to deposit a predefined amount to the insurance company till the specified time. This amount will be received by the nominee after the end of the tenure of the policy or after the sudden death of the policyholder. Life Insurance Corporation of India had issued over 21 million fresh new policies in the year 2019.
What is the role of a Nominee in a Life Insurance Plan?
We can understand from above that the nominee has a vital role to play in the provision of a Life Insurance Plan. After the death of the policyholder, the cumulative amount will be given to the nominated person under the plan. The nominee is chosen by the policyholder while filling documents for the Life Insurance Plan. They can also be assigned anytime but before the tenure of the term.
Who can nominate the nominee in a Life Insurance Plan?
Only the policyholder, whose life has been insured by an insurance company, can nominate a person. The nominee can be a minor, an adult, or a senior citizen.
For example, if person A insures his life, only he can nominate a person (let person B), whom he relies upon for the matured amount after his death. And the nominee, person B, will receive the cumulative amount after maturity or demise of person A. Due to the policy, person B has the right to receive money on behalf of person A.
Who is eligible for a Nominee in a Life Insurance Plan?
- The Nominee for a Life Insurance Plan may or may not be related to the policyholder by blood. Thus, apart from your family members, you can nominate anyone from your friends, colleagues, or work.
- The nominated person can be a minor, an adult, or a senior citizen at the time of issuing the Life Insurance Plan. While nominating an adult is the most secure and less fussy, nominating minors and senior citizens have some regulations to be taken care of.
- In the case of a minor, an attendee is assigned. In case the policyholder dies when the nominee is still a minor, the attendee will receive the matured amount. It is because the minor is ineligible for legal transactions.
- Nominees can be changed before the term matures. Thus, if the nominee dies before the term closes, the policyholder can nominate another person instead of the nominee. The policyholder needs to undergo paperwork for nominating the other person.
- A Life Insurance Plan can be benefitted by more than one nominee. For example, in a family, if the father insures his life and nominates his wife and three children, all the four can avail the insurance amount after maturity. The matured amount will be equally divided among the nominees by the insurance company.
What are the types of Nominees?
It is obvious that a nominee is needed while applying for a Life Insurance Plan. While anyone can be nominated by the policyholder, there are some important laws to keep in mind while nominating and regarding the types of persons who can be nominated.
- Beneficial Nominees
If the nominee appointed is an immediate relative (parent, spouse, children) of the policyholder, then the nominee will be referred to as "Beneficial Nominee". Here, the matured amount will be given to the beneficial nominee only.
- Minor Nominees
A policyholder can nominate a person under 18 years of age. Such nominees are called minor nominees. Here, an attendee is assigned on behalf of the nominee. In cases where the policyholder dies, and the nominee is still a minor, then the attendee receives the matured amount.
- Changing Nominees
A policyholder can change the nominee of the Life Insurance Plan if they desire to. For this, the policyholder has to undergo paperwork for changing the nominee before the insurance plan matures.
Frequently Asked Questions:
- Can a nominee be other than blood relations?
Yes. The policyholder can nominate anyone as a nominee and is not limited to blood relations. The nominees may range from friends, colleagues, business partners, etc.
- What happens if a nominee dies before the maturity of the insurance?
If the nominee passes away before the policy matures, the policyholder can change the nominee. For that, s/he will have to consult the insurance provider and undergo paperwork.
- Can a whole family be nominated?
Yes. A policyholder can nominate more than one person at a time. The insurance amount will be divided evenly among the nominees, and each of them gets their share legally.
Life Insurance Plan is beneficial and valuable. They act as a protective shield for your family when you are in dire need of financial stability. But one thing you need to remember while signing the documents is that you should be well-informed regarding the terms and conditions and other benefits of the policy.
In short, a nominee is crucial when applying for insurance. It is the nominee who gets the insured amount after maturity. Also, the amount is financially beneficial to the nominee after the death of the policyholder. While there are no restrictions on nominating someone who is not related to the insurer by blood, for seamless paperwork in future, the nomination of a blood-relative is suggested.
Also, there are many regulations regarding nominations. The interested policyholders should check the documents carefully and discuss the same from the insurance provider officials before proceeding for the same.