Life is unexpected and works in the most mysterious ways. Unanticipated twists and turns can occur at any time and you can be caught unawares. A sudden death, an accident, or an unexpected disability can derail all the plans that you had for yourself and your family.
A life insurance policy is imperative because it provides the necessary financial support to your family in case of your sudden and unexpected demise. And, while there is certainly no replacement for a person, life insurance ensures that the rest of the family does not experience financial strain after the loss of a loved one. It also takes care of any financial liabilities that you might have such as education and other requirements of your children, or medical expenses of your dependents.
In a conventional life insurance policy, your chosen beneficiary receives a death benefit, which is a predefined definite sum.
In this article, we discuss who would receive the claim of your life insurance in the event of your untimely death. Let’s start by discussing a few common terms used in this context.
Who is a nominee?
When purchasing Medical Insurance, you are required to nominate a person who will receive the benefit of the policy in the event of your death. This person is called the nominee.
Conventionally, a policyholder appoints a trustworthy person such as his parents, siblings, spouse, or children as the nominee. This custodian would then transfer the death benefit to the minor nominee once they come of age.
The pertinent question to answer here is whether the nominee of the policy would always receive the benefit after the policy holder’s death.
The answer is no. While it seems likely that the nominee would receive the funds, this is not always the case.
A nominee serves only as a custodian or a caretaker, who must, eventually, ensure that the legal heir of the assets receives it. A nominee is not the legal owner or holder of the death benefit. A legal heir is a person who would receive the death benefits as stipulated by the legal rules of a particular place or a will, after the death of a person.
Let me give you an example.
Let’s say that Mr. A has purchased a life insurance policy and has appointed his wife as the nominee. However, in his will, he has stipulated that his children must be the eventual beneficiaries of the death benefits of the Insurance Policy. His wife, then, will have to hand over the death benefit to his children as the will is legally binding.
So, there certainly is some ambiguity regarding who would eventually receive the death benefits of a life insurance policy. Often, legal heirs and nominees would fight long legal battles to decide who the final recipient would be.
This would cause the money to be with the insurer and not the correct recipient, failing the very purpose of life insurance.
Because of this ambiguity, authorities introduced the concept of the ‘beneficial nominee.’
Who is a beneficial nominee?
They will receive the death benefits, irrespective of who the legal heir is.
It is also worthwhile, then, to ensure that the legal heirs and beneficial nominees in all your policies are consistent so that there are no disputes in future.
Hence, to ensure that the intended recipient receives the benefits, it is crucial that you appoint the right person as the nominee.
Can you change the nominees on your life insurance policy?
Yes, you have the authority to change the nominee on your life insurance as per your wish across the policy tenure. It is the latest nominee that will receive the death benefits.
Can you have multiple nominees on your life insurance policy?
Yes, you certainly can have multiple nominees on your insurance. You can also mention the percentage of the death benefit that you would want to attribute to each of the nominees.
We hope this article has helped you understand who to appoint as a nominee while purchasing life insurance. You must be specific and unambiguous when deciding upon a nominee to avoid any untoward repercussions. So, it is crucial that you review your policy periodically and keep updating it as and when necessary.
This is because you have transferred the risk of a financial loss to the insurer in exchange for a small payment periodically. A strong life insurance, however, can help your family cope with, at least, the financial losses associated with such an unfortunate event.
So, while insurance is crucial at all times, it is indispensable during a recession. You must first analyze your requirements and understand what kind of insurance you need depending on the risks involved – life, home, health, or car. Then, ensure that you do your homework and purchase a strong insurance policy that will mitigate your financial risks in these uncertain and despondent times.