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How to Change Nominee in a Term Insurance Plan?

dateKnowledge Centre Team dateJune 07, 2021 views345 Views
Changing Nominee in a Term Insurance Plan | Term Insurance Plan

In banking, nominees are simple custodians to claim the amount and distribute the same as per the will or to the legal heirs. In case of insurance, nominees are actually “beneficial nominees” because they are not required to distribute the amount. The nomination on an insurance policy supersedes all wills/testaments/legal heirs.

You must think thoroughly before appointing someone as a nominee on your insurance policy. The nominee should be a person who will be financially affected because of your demise. In most cases, appointing distant relatives or friends is not allowed unless you are able to clearly prove insurable interest.

Definition of a Nominee | Beneficiary in a Life Insurance Policy

The core purpose of life insurance is to provide financial security and peace of mind to those dependent on you. However, if nomination is missing or not updated, the exact opposite happens. In case of your unfortunate demise, your loved ones will have to struggle to claim the benefits. Absence of proper documents will only complicate and lengthen the process making it inconvenient for all. All this when the family is already grappling with the emotional loss. In the absence of nomination, the insurer may pay the amount to legal heirs or as per available will/testament. The insurer may also seek a succession certificate which only add to the overwhelming number of tasks. An incorrect or missing nomination can lead to further trauma to your family at a time when they need empathy, love, and support.

Also Read - What is Insurance?

As per the amended law of 2015, the beneficiary nominee is the person who receives and keeps the money received from an insurance policy. There is no scope for challenging such settlements made by an insurance company. Under the old law, the nominee was supposed to receive the money and distribute to the legal heirs. The new Insurance Act clears all such ambiguities.

This is why it is important to keep your nominee details updated from time to time in the term and other life insurance policies. Change the nominee details and share of each nominee as per the changing life situations. This will ensure the benefits reach the intended individuals only after your demise.

The law pertaining to assignment in an insurance policy has also been changed. Under earlier laws, when you pledged your policy as collateral to a bank, the bank became the owner of the policy. After the death of the insured, the insurer paid the sum assured to the bank, and it was up to the bank to calculate amount payable to the nominee after deducting any outstanding loans.

However, as per the new law, the insurer will pay the outstanding loan amount to the bank and disburse the rest to the nominee. This too puts to rest any scope for legal disputes.

Can you Nominate Multiple People as Nominee in the Same Life Insurance Plan?

You may not only appoint multiple nominees but also mention the percentage of benefits you want each of them to receive. For example, if you nominate your father, spouse and son as your nominees, you may allocate 40% each to your father and spouse and the balance 20% to your son. This option is useful if you want different people in the family to get monetary benefits so that no one is left without support.

How to Change Nominees in Term Insurance Plan?

You can change nominees anytime during the policy term. You can contact the nearest office of the insurance provider or connect with the online support for the step-by-step process. This option is provided by all insurers, and the latest nomination is considered valid and supersedes all the earlier nominations. There is no limit on the number of times that you can update the nomination details. The broad steps are listed below:

a) Choose an online or offline application
b) If you choose a physical copy, fill and submit the same at the nearest branch
c) If you are filling online, complete the form and submit
d) Ensure you have clear details of the new nominee
e) Insurance company then acknowledges receipt of application via a letter or an email.
f) This acknowledgement should be kept safely for records.

The electronic insurance account (e-IA) is useful in managing nominations. The “Authorized Representative” can check the latest status and nomination in the e-IA and coordinate with the insurer in case of demise of the insured.

As per IRDA, e-IA stands for e-Insurance Account or “Electronic Insurance Account” which will safeguard the insurance policy documents of policyholders in electronic format. This e-Insurance account will facilitate the policyholder by providing access to the insurance portfolio at a click of a button through internet

Benefits of an e-IA:

  • No more physical policy documents
  • View and manage all your life insurance policies under a single account
  • Changes in contact details once updated with the repository, gets auto updated in all your policies across all life insurers
  • Opening e-IA is free

IRDA has granted the Certificate of Registration to the following four entities to act as 'Insurance Repositories' that are authorized to open e-Insurance Accounts.

  • Karvy Insurance Repository Limited
  • CDSL Insurance Repository Limited
  • CAMS Repository Services Limited
  • NSDL Database Management Limited

The “authorized representative” and “beneficial nominee” can be the same in an e-IA, although the discretion to choose either is left to the policyholder.

Term insurance helps mitigate risks so that your family members remain financially secure even if you are not around. Thus, it is important that you have an adequate insurance cover to support all members of your family who are financially dependent on you. If necessary you can also divide the cover to suit the needs of different family members.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.

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