What Happens if the Nominee Dies in a Term Insurance Plan?

Nomination is the way to ensure that the intended parties get the benefits of your life insurance plan after your demise. A term insurance plan is generally beneficial for the families to cope up with the financial shock after the sole earning member of the family passes away.

However, term life insurance plans also offer whole life cover that lasts till 99 years of age. Life is uncertain and a lot can happen during the policy tenure. The policyholder may pass away or the nominee may pass away during the tenure.

We know that the nominees or beneficiaries can claim the life insurance policy in case the policyholder passes away. But what happens if the nominee passes away during the policy term?

Who is a Nominee in a Term Plan?

In case of a life insurance policy, the term “Beneficiary” or “Nominee” are the legal beneficiaries of the claim amount and no other legal heir can stake claim to the Sum Assured on that insurance policy. When an individual buys a term life insurance policy, they generally assign their family members as beneficiaries of the plan. Multiple nominees can also be assigned, and the policyholder has to define the percentage allocation for each of them.

Nominee’s Death in a Term Plan

If the nominee dies while the policyholder is alive during the policy tenure, the nomination becomes null and void. Policyholder can change the nomination. However, if the nominee dies after the policyholder’s death but before receiving the claim amount, the amount would then be paid to the legal heirs. To avoid disputes and reduce any financial challenges for the family, it is best to treat nomination seriously and update it as and when required. The money should go to the people who need it most when you are not around. Ergo, mentioning the beneficial nominee’s name is quintessential.

Learn - how to choose a nominee for your term plan.

Can you Change Nominees in a Term Insurance Plan?

Changing nominees is allowed in a term plan, but the latest beneficial nomination will supersede and all older nominations. The previous beneficiary nomination will stand null and void once you change the nomination.

Nominee details should be accurate and updated to avoid legal hassles for your family. Incorrect details will only add to the trauma of your family and make them run pillar to post for getting the benefits they are entitled for.

So, who can you nominate as a beneficiary? Let us find out.

Who can be a Nominee?

Anyone in your family who are financially dependent on you and will be financially affected in case of your unfortunate demise can be chosen as a nominee. You cannot nominate non-family members, distant relatives, friends or strangers to become nominee as these people are not financially dependent on you.

This raises another important question of appointing minors as nominees of your insurance policy.

Appointing Minors as Nominees

Children too can be appointed as beneficiary or nominee in a term life insurance policy. After all, in many cases, one of the goals of protection plan is to secure the children’s future and support their aspirations to study and become financially independent. However, children below 18 years of age are minors and are legally not allowed to manage money. A guardian, called custodian or appointee is necessary until the children turns 18. Ergo, in such cases, the claim amount is not directly paid to the children and paid to the guardian instead.

Nomination in Policies under MWP

A married man (divorcee or widower) can buy a life insurance policy under the Married Women’s Property Act, 1874. Only the legally wedded wife and children of the policyholder can claim the benefits of the policy. It doesn’t allow any relatives, heirs, or creditors to make the claim.

For example, Mr. X is married to Ms. Y and after getting married they purchased a home keeping in view their future needs. To make the purchase, they opted for a home loan that has a repayment period of 10 years. To protect his home, he had bought a term insurance plan too. After 8 years of repayment, Mr. X passed away. In this case, the creditors cannot make a claim on the death benefits of the term insurance policy bought by Mr. X.

What Happens in case of No Nomination?

In case the policyholder had not nominated anyone in their policy, there is an established legal procedure that the insurer follows to avoid any legal disputes in future. The policyholder’s spouse, son, father or mother, classified as Class I legal heirs are (in that order) are first entitled to receive the claim amount. If the policyholder has left a will, then the distribution will be as per the Indian Succession Act, 1925, after the court issues the succession certificate and the insurer indemnifies itself against any disputes.

The process of nominating beneficiaries is free and life insurers do not charge any fees for the same. A policyholder is allowed to make fresh nomination or update their nominees anytime before the maturity of their life insurance policy.