How To Choose a Nominee For Your Term Plan?

2024-08-02

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A term insurance plan is one of the most important financial investments in your life. It provides your family with a financial security that no other investment can. It provides a large sum assured at a nominal premium amount.

If you opt for the Canara HSBC life insurance’s iSelect Smart360 Term Plan, you can opt for a sum assured of minimum Rs.25 lakhs and pay your premium yearly or monthly. It also comes with the options of accidental death and accidental disability benefits, which will give your family added protection against medical costs.

One of the advantages of term plan is that it is possible for you to take one even at the beginning of your career when your earnings aren’t a lot. In return, your family receives a payout in the event of your demise within the policy term. For this purpose, you must nominate a specific person from your family.

Key Takeaways

Appointing a nominee ensures your life insurance payout reaches the right person without legal hurdles or delays.
While nominees are usually close family, you can also choose distant relatives or friends if you can prove insurable interest.
Term plans allow you to nominate more than one person. You can also define the share of the benefit each nominee receives, adding a layer of personalisation to your financial planning.
One of the biggest advantages of a term plan is the flexibility to update, change, or cancel your nominee at any time during the policy term.
If your nominee is a minor, you must assign a trustworthy appointee to manage the claim amount until the child turns 18.

Who is a nominee?

A nominee is a person who you officially appoint as receiver of sum assured of your term insurance policy while buying the policy. This person acts as the beneficiary of the insurance payout and is typically someone who is financially dependent on you, such as your spouse, child, or parent.

The process of appointing such a person is called nomination. It is a crucial part of the policy setup process and ensures that the benefits of the policy are directed to the right person, without legal complications or delays. You can mention the nominee’s name, relationship with you, and other essential details at the time of purchasing the policy. In case circumstances change, you also have the option to update or change the nominee at any time during the policy tenure.

Thus, having a nominee for your policy adds an extra layer of security to your financial planning, ensuring that your family or chosen beneficiary is financially protected.

Why is nomination important?

Listed are some of the reasons why nomination is important:

1. Essence of an Insurance Policy:

The very essence of life insurance is leaving behind a financial cover for someone in the event of your death. Nomination ensures that this support reaches the intended recipient without legal complications or delays.

2. Ability to Nominate Anyone:

Usually, policyholders nominate their spouse, children, or another family member as nominee for an insurance plan. Another one of the advantages of term plan is that you can nominate almost anyone. If you can prove insurable interest , you could also nominate a friend or a distant relative.

3. Multiple Nominees:

You can choose more than one nominee. In case the first nominee does not live out the policy term, the second one gets the benefit.

4. Shared Benefit:

You can also arrange for sharing of the death benefit amongst multiple nominees. In this case, the benefit can be shared between the appointed nominees according to the allocation decided by you.

5. Cancellation:

Another important one of the advantages of term plan is that you are allowed to cancel and change your nominee as and when you want and how many ever times you want.

What should you consider before appointing a nominee?

Appointing a nominee is a decision that can impact your family’s future. Before naming someone, consider the following factors to ensure your term plan benefits are handled responsibly and effectively:

Choose someone you deeply trust to take care of your family and finances in your absence.
Ensure they understand your family’s financial needs, such as children’s education or spouse’s retirement.
The nominee should be emotionally and financially mature to make wise decisions.

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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.

Conclusion

Choosing a nominee for your term plan is just as important as choosing the right insurance plan. It ensures your family receives the financial protection you intended for them, without any complications.

A well-chosen nominee ensures your insurance plan fulfils its ultimate purpose, i.e., securing your loved ones when they need it the most. With plans like the iSelect Smart360 Term Plan by Canara HSBC Life Insurance, you get comprehensive coverage along with the flexibility to update your nominee as life changes.

Pro Tip: Review your nomination regularly and update it in case of marriage, divorce, childbirth, or other major life events.

Did You Know?

The number of Indians with term insurance is low, ranging from 60 to 70 lakhs, and a majority of those policies do not provide sufficient coverage.

Source: The Hindu

Glossary

Grace Period: A 15-30 day window after the due date during which you can still pay your premium without policy lapse.
Policy Lapse: When a term life policy becomes inactive due to non-payment beyond the grace period.
Reinstatement: The process of restoring a lapsed term life policy by paying outstanding premiums and fulfilling insurer conditions.
Health Declaration: A form that insurers may require to confirm your health status before reinstating a lapsed policy.
Term Insurance Plan Calculator: A tool that helps estimate premium costs, ensuring better financial planning for term insurance.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.