What if a Nominee for Term Insurance Isn’t Appointed?
In the case of no nominee being appointed or the appointed nominee’s death, there are two possibilities.
- If the insured did not have a will, the sum assured plus bonuses are given to a Class I legal heir, which includes spouse, son, father, and mother.
- If the insured has left behind a will, the death benefit is given to the successors as per the will. The process for this is explained in the Indian Succession Act, 1925.
What if a Minor is Appointed as a Nominee for Term Insurance?
It is a common practice to appoint a minor child as a nominee for an insurance policy. However, you also have to decide an appointee for the minor. The appointee will receive the money on behalf of the minor until the minor crosses 18 years of age.
Thus, it’s important to choose someone trustworthy and financially responsible as the appointee, as this person will be in charge of using the claim amount in the best interest of your child during their formative years.
What is an Assignment?
Assignment for an insurance policy is made through a separate deed and takes precedence over nomination. Once a policy is assigned, the assignee becomes the rightful owner of the policy benefits and gains complete control over it, including the ability to surrender or receive the policy proceeds. If you assign your policy to a person, it cannot be revoked. The assignee does not have to be an immediate family member.
What is a Conditional Assignment?
A conditional assignment is a type of assignment that comes with specific conditions or is valid only under certain circumstances. Unlike an absolute assignment (which transfers complete ownership to the assignee permanently), a conditional assignment is temporary and dependent on the fulfilment of a condition.
You can also opt for a conditional assignment instead of an absolute assignment. For example, say the insured has given their insurance plan as a guarantee for a loan, and they pass away before complete repayment of the loan. In this case, the assignee will carry out the necessary procedure of repaying the loan through the insurance policy. Once the loan is fully repaid, the assignment is over, and any remaining funds will be paid to your nominee, or the policy will revert to your control if you’re alive.
This makes conditional assignments useful for protecting both the policyholder’s and the lender’s interests in financial transactions.
What if there is a Difference Between Policy Nomination and Will?
If the person mentioned in the policyholder’s will is different from the nominee, the will assumes higher importance and the benefits are carried out as per the will. It is important to make sure that the will mentions the same nominee as the policy documents.
Only with a complete understanding of the procedure and implications of nomination should one appoint a nominee for term insurance.
