Insurance

Unforeseen Circumstances: Navigating a Nominee’s Death in a Term Insurance Plan

Financial planning includes nomination as a critical component. One of life’s most significant financial investments is a term insurance policy. In the event of your untimely passing during the policy term, your nominee will be the one to collect the proceeds of your life insurance policy. Therefore, the decision of the policyholder is absolutely crucial. The candidate is usually a family member or a close relative in insurance policies.

You may select more than one candidate. The benefit is paid to the second nominee if the first nominee does not live to see the end of the insurance term. One is free to withdraw and replace a nomination whenever and however many times they like. It is a straightforward procedure. 

Nominee’s Passing

The nomination is ruled void if the nominee passes away while the insured is still living. The policyholder may modify the nominee. But if the nominee passes away after the insured has passed away, the money would be given to the insured’s legitimate heirs before getting the claim money.

No other legal heirs are entitled to the sum promised under an insurance policy. Hence, in life insurance, the beneficial nominees are the actual recipients of the claim amount.

Nominations Of Minors

Children can also be named as advantageous nominees on term life insurance contracts. However, children under 18 are considered juveniles/minors and prohibited from managing money by law. In these situations, the claim payment is made directly to the guardian rather than the children.

What happens if nominees are not declared in the term plan?

If, as a policyholder, you have not designated someone in your term plan, you must follow a recognized legal procedure to prevent future legal issues. For example, Class I legal heirs include the policyholder’s spouse, father, son, or mother. This is because they are qualified to get the death benefit sum.

Without a nominee declared or a will, the Indian Succession Act 1925 will be followed to determine how your assets are distributed.

It is always advised to nominate a family member to avoid any potential legal problems between the candidates and legal heirs in the future. The life assured may alter the nominee as frequently as desired. The newer nominees take precedence over the older ones. Therefore, if your nominee changes, ensure your insurance company’s policy is updated to prevent more issues. After all, you do not want your nominee to miss out on one of the key benefits of life insurance, i.e., the payout of the sum assured or the death benefit. 

Who Can Be Your Nominee- A Closer Look 

The nominee may be any individual appointed by the policyholder to receive this death benefit or sum assured payout in case of their demise within the policy tenure. In most cases, children and parents can be nominees, along with siblings as well. 

The rules also state that simply being a legal heir only makes one entitled to be a nominee if specified in the document. The policyholder should specify the nominee while buying the policy or at a later juncture. It may be updated when signing the document, i.e., filled up in the policy form. It may also be updated later on if you wish. This can be done by updating the form and signing it in the presence of a witness. 

Can non-family members become nominees? 

Many people think that only family members can become nominees. Yet, it is not only restricted to family members. In case someone is unmarried or does not have any close family members or relatives, or even for some other reasons, non-family members may be appointed nominees. You may nominate someone who is your distant family member or relative or even a friend as a nominee. Yet, the non-family member, in this case, will get this sum assured only in the form of a custodian. If they exist, the policyholder’s legal heirs may claim the death benefit of the insurance policy

To conclude, you should choose your nominee carefully and read up on the information given on sudden and unfortunate scenarios when the nominee passes away in the policyholder’s lifetime. You should also compare policies before choosing the best one for your needs and evaluate the tenure, coverage amount, premium, and other factors

 

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