What Is Life Insurance Nomination?
fNomination is the process of appointing a person, who will receive insurance benefits after the death of policyholder. The person who is appointed to get all benefits is called ‘Nominee’. Under Section 39 of the Insurance Act, 1938, the life insurance policyholder has a right to appoint a person or persons to whom all money, secured by the insurance policy, will be passed in case of death. Nominee(s) can be appointed at the inception of the policy or at any time before the lapse of current policy or death of policyholder. For example, Mr. Shyam had taken Max Life Insurance policy and had appointed Rahul, his son, as a nominee. Last year, he died due to a road accident; Max Life Insurance Company will be liable to pay all death benefits to Rahul. Such nomination, which is made after the commencement of insurance policy, should be informed to the company as soon as possible.
After appointing a nominee, the policyholder can change it at any point of time by making an endorsement of the same on life insurance policy. If there no space is left for an endorsement, a policyholder can do it on a separate paper, which should be duly signed by an insured person and pasted onto the top of the policy.
Role of nominee- A nomination only bestows right to nominee for receiving all policy benefits after the death of policyholder. He/she will have no rights over the assets or death benefits unless that is written in the will of deceased policyholder. It means nominee is the only point of communication for insurance company after the death of policyholder.
What if, the nominee is a minor- In case of minor nominees, a policyholder is required to appoint an appointee. An appointee is required to give his/her consent through endorsement by affixing signature on the proposal form or policy document. The appointee will lose his/her status when the nominee will become major. If there is no appointee appointed of the minor nominee, the death benefits will not be paid to local guardians. In this case, death benefits will be paid to the legal heirs of deceased policyholder.
If there is more than one nominee of a single insurance policy, death benefits will be jointly paid to them or to survivor(s). For example, Mr. Kamal has taken Sahara Life Insurance and has made his wife and father as nominees of life insurance policy. It means when Kamal will die, death benefits of life insurance policy will be shared between his wife and father.
If nominee dies after death of policyholder but before receiving benefits, then money would be paid to legal heirs.
Some of the unique features of nomination are-
Nominee has no right to sue.
Change in nomination can be done by a separate deed.
Before the death of a policyholder, nominee will have no control on the policy.
If there are creditors of the policyholder, then they will have the first right to claim the policy money after death of policyholder.
Policyholder reserves rights to change the nominee.
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