A life insurance plan is a contract to protect the lives of the insured and their families. Throughout the policy term, the insured individual makes periodic payments(insurance premium) to the insurance company.
However, the money deposited and other benefits are given to the nominees on behalf of the deceased after the tenure. But who is the nominee? What is the role of the nominee? Understanding the meaning is vital as it plays an important role in every insurance contract.
What is a Nominee?
A person who receives the benefit in case of death of the insured person is a nominee. When purchasing a life insurance policy, the insured individual selects or names a nominee. Typically, the nominee is the spouse, kids, or parents. The insured party may designate one or more individuals as nominees.
What is the Importance of a Nominee in Life Insurance
The purpose of designating a nominee is to ensure that nobody else, but your chosen individual, benefits from the insurance while you are away. This guarantees that even after your passing, the goal of the life insurance policy will still be met.
You might be asking what a nominee's function is in an insurance claim now that you know who a nominee is. The necessary paperwork that must be provided by a nominee in the absence of a policyholder includes:
- Identity Proof
- Claim Intimation Letter
- Death Certificate of the Policyholder
- Post-Martem Report of the Policyholder
Who is Eligible to Become a Nominee?
The types of relatives that can be a nominee in life insurance are as follows:
- Immediate Family Members: You can nominate your parents, siblings, or other family members. They can take your insured money and give it to the individual whose financial future you want to protect.
- Legal Heirs: Your nominee in life insurance can be one of your legal heirs, such as your wife or children.
- Extended Family Members: Any acquaintance, family, or cousin can be put up as a nomination. You must get your insurance company's consent to appoint such a nominee.
A person is designated in the case of a minor. The attendee will get the matured amount if the policyholder passes away while the nominee is still a minor. The reason is that a minor is not allowed to engage in legal transactions.
Mistakes to Avoid While Nominating Life Insurance
When choosing their policy nominee, a life insurance policyholder can make mistakes. If done poorly, it might cost the insured dearly. You should be aware of some errors when appointing a candidate for your life insurance policy. Let us look at them:
- Single Nomination: Because they do not wish to designate more than one individual for nomination, policyholders frequently give a single nomination when it comes to selecting a nominee in life insurance The claim settlement process may become problematic in a situation like this if the nominee tragically passes away and the policyholder does not update the nominee's information.
- Not Updating Nominee Details: Another significant error that most holders of life insurance policies make is failing to timely update the nominee information. As needed, the policyholder is responsible for promptly updating the nominee's information, including name, address, and other pertinent facts.
- Making a Minor as a Nominee: The claim procedure will be stopped and the minor will not eventually receive any financial death benefit if the policyholder fails to designate a custodian for a minor nominee. A policyholder must always designate a custodian if their nominee is a minor to avoid the bother.
Types of Nominees in Life Insurance
The following categories of nominees are eligible for benefits:
- Beneficial Nominees: Any member of the immediate family may be nominated. They will hold the claim benefits in their beneficial ownership. Only members of the immediate family may be named as beneficial nominees.
- Non-Family Nominees: With your insurance provider's permission, you can add a family member or friend as a policy nominee.
- Minor Nominees: Minors are frequently named as life insurance nominees by policyholders. However, minors under 18 must have a custodian named by the policyholder because they are not deemed old enough to manage claim amounts. When a claim is made when the nominee is under 18, the claim will be paid to the caretaker until the candidate turns 18.
- Changing Nominees in Term Insurance: You can alter the nominee several times, and the most recent nomination will take precedence over all prior nominees.
Difference Between a Beneficiary and Nominee
As the name implies, a nominee is someone the policyholder names or appoints to manage their financial accounts, assets, etc., after his death.
A beneficiary is a person who has a financial stake in the policyholder's life. The beneficiary may be the policyholder's legitimate heirs or lending organisations like banks that have given the policyholder a loan or other financing.
The nominee and beneficiary may occasionally be the same individual.
Question: - Can I appoint multiple nominees to my life insurance policy?
Answer: - Yes, you can nominate more than one nominee, and the death benefit will be paid out in equal lump sums to the nominees or to whichever nominee survives.
Question: - Is it possible to appoint my child as a nominee?
Answer: - Yes! The policyholder may name their child a nominee under their life insurance policy. Suppose the child is under the age of 18. In that case, the policyholder/life insured must additionally name an appointee under the life insurance policy, who will collect the claim amount on behalf of the minor nominee.
Question: - Is there a way to cancel the nomination in life insurance?
Answer: - You must notify the life insurance firm if you intend to revoke the nomination under your life insurance policy. You can, however, revoke the nomination under your term policy by an endorsement or will.
Question: - What are the different types of nominees?
Answer: - Beneficial, Minor, and Changing nominees are the three sorts of nominees under a life insurance policy.
Question: - Are there any charges to appointing a nominee in a life insurance plan?
Answer: - There is no price for making a nomination under a life insurance policy, but if you want to modify your nomination under your life insurance, you may have to pay a fee depending on the insurance provider's terms and conditions.