Term insurance works by offering coverage for a pre-defined number of years, generally understood as the policy term. In case of an unfortunate event during this period such as policyholder's demise, your nominee will be entitled to receive the sum assured in your policy.
In today's era, the importance of relevant term insurance is hard to underestimate. If you already have a pertinent insurance plan from a reliable insurer, the chances of stress bothering you will be significantly lesser. A policyholder thoroughly needs to understand some jargons of insurance. Out of numerous, one of them is a nominee. To keep misunderstandings at arm's length, the family must entertain the nomination clause earnestly and thus update it, depending on the circumstances. In everybody’s best interest, this money will offer many merits when acquired by the legatee. Let's understand what exactly the nomination is.
Nomination in a term plan confirms that assures that the policy acts as a silver lining and reaches the chosen parties despite your demise. Nevertheless, since term covers are exceptionally long-term covers, anything and everything can happen during its duration.
What is the importance of Nomination in a Term Plan?
The nominee is the term used for addressing the legal custodian of involving stakes. After the demise of the policyholder, the insurer is responsible for paying the sum to the legal heir(s). It will be determined by the desire of his/her desire.
In case of any tragic event, it may so happen that the legal custodian or the nominee of the insurance holder dies before the insurance holder. In such circumstances, the nomination automatically revokes, and the policyholder must substitute the nominee. But obtaining the claim amount harbors a legal process and consumes some time. If the nominee passes after the demise of the insured person, but before the culmination of this legal procedure of receiving the money, then the legal heir is allowed to claim it.
If you are the sole earner in your family, your demise will have a massive catastrophic effect on your dependents. It is quintessential to choose a nominee to relieve the negative impact of your demise. As per the prevailing laws, you are not entitled to assign any distant relatives, strangers, buddies, or non-family members, except with proof of their monetary dependence on you.
The term 'beneficial nominee' is used to address those legal inheritors who are permitted to claim the sum assured after an unfortunate death of the policyholder in case there are no legal successor claims. While buying a term plan, you have to enumerate the names of beneficial nominees and multiple of them, evidently declaring the allocation of the total sum assured.
Nominating minor nominee
A policyholder can even nominate any child/children as a beneficial nominee for a term insurance plan. Generally, a lot of significance of a term plan fibs in brightening the future of the child. Regardless, any child below 18 years of age is deemed a minor and is legally not allowed for money management. As long as the child/children turn(s) 18, one needs to specify a legal custodian till that time.
Changing the nominee
If a nominee dies before the policyholder, changing the nominee is possible, but you need to consider all the terms and conditions. Once the nominee is modified, all the previous nominations automatically get canceled by the current nomination.
Chief attributes of term insurance useful for nominees
Some of the basic features of term insurance that have are thought profitable for most beneficial for nominees are penned down:
- Preferable claim payout
- Supplementing the life coverage
- Cover for any non-working spouse
- Affordable premiums
- Easy to buy
- Premium waiver benefit.
- In case of non-declaration of nominees
If the concerned insured person has not nominated any person, a conventional and well-established legal practice is pursued to keep any misunderstandings or legal issues at bay in future. The father, the mother, the spouse, and the descendants fall in the category of first-class legal heirs of the concerned policyholder. In case of non-declaration of the nominee, they are qualified to acquire the death benefit after the policyholder's death. Under such circumstances, the death benefit gets allocated as per the clause cited in the Indian Succession Act of 1925.
Additionally, a policyholder can change the nominee. For this, he/she just needs to fill out a nomination form and present all the necessary documents to your insurer, and the nominee details will be updated.
The sole purpose of a term plan is to fortify your family’s financial future. Therefore, the nomination is a crucial aspect of the application process. Specifying a nominee helps you assure that somebody will be there to claim and obtain the policy benefit. He/she will use the claim amount to ensure your family’s needs are met. Furthermore, a nominee needs to be aware of the policy details and the claim settlement process, and maintain a copy of the policy to initiate a claim when required.
Did you know that absence of a nomination can turn into a hefty affair? Nomination confirms that the acquisitions get repositioned to the beneficiaries upon incapacity or death. It ensures a glitch-free transfer. An invalid nomination can cause an unmanageable transfer process and additional costs and holds.
It is advised to nominate a family member to avert disputes. Nevertheless, it is not always possible, and the concerned insurance holder is allowed to modify the nominee(s) and legal heir(s) as many times as he/she wishes. Once the selection and update of a new nominee(s) or legal heir(s) is done, the older ones are revoked by the latest action. Hence, in case of nominee change, ensure to inform the concerned insurance company as soon as possible, to keep any future misunderstandings or conflicts at bay.