Mahesh lives happily with his family, consisting of his elderly parents, wife, and two children. Ever since the outbreak of COVID-19, Mahesh has been planning to buy a term insurance plan. Since he is the only breadwinner in the family, he does not want his family to suffer if something unfortunate happens to him. However, he is in a bit of confusion about choosing the nominee for the term insurance policy.
When an individual buys a term insurance policy, he/she can choose a term insurance nominee who would be able to claim the sum assured in a situation where the policyholder passes away within the tenure of the policy. As the nominee is concerned, one can choose his/her spouse, children, or parents as the nominee of the policy. Let us talk about the term insurance nominee rules and process in length here.
Importance of nominee in your Insurance Policy
A nominee is a person who can claim the sum assured of the term insurance policy after the demise of the policyholder. When you buy a term insurance policy, you do it for your family and you mention one of them as the nominee of the policy. Also, when you choose a nominee, you have to submit all the required information and details of the nominee. You need to choose the nominee very carefully. The nominee should know everything about the term plan and also the ways to claim the sum assured. Also, the details of the nominee that you mention should be correct and proper.
Are a nominee and beneficiary the same?
The majority of people think these two terms are synonymous. However, while buying a term insurance plan, you need to be aware of the exact meaning of both these terms. As you purchase a term insurance plan, you mention the name of a nominee in the policy document. This nominee can claim the sum assured if you pass away within the policy term.
A beneficiary is the one who manages the financial assets of an individual. A financial institution or a legal heir can be a beneficiary.
Can we change the nominee in term insurance?
A nominee of a term insurance policy can of course be changed. However, you need to make sure that you are paying the premiums on time and regularly. If you are not happy with your choice of nominee, you can change the name by filling out the form again and submitting the required details of the nominee.
As you change the nominee, you have to make sure of updating all the important and relevant information about the nominee to avoid any surprises during the claim process.
What happens if the nominee dies in term insurance?
In a situation where the nominee passes away while the insured is alive, the policyholder can change the nominee. If the nominee dies after the insured passes away but before claiming the sum assured, the amount will be paid to the legal heirs.
Mentioning the name of the nominee carefully while buying a term insurance policy is very important. Since you want the nominee to claim the sum assured, you must provide all the correct details about the nominee while filling up the forms. In case of changing the name of the nominee, you must inform the insurance provider at the earliest. Also, you need to provide all the relevant information about the new nominee.
Can minors be nominees too?
You can appoint your children as the nominees on your term insurance policy without a doubt. After all, one of the reasons for buying a term insurance policy is to secure the future of our children and provide them the required financial support even when we are not around.
Nevertheless, when you are appointing your child who is below the age of 18 years, he/she is not legally allowed to manage finances. Until the child turns 18 years old, a guardian, who is called an appointee or a custodian is required. In such a case, the claim amount is paid to the guardian and not directly to the child.
Nominees in policies under MWP
Under MWP (Married Women Property) Act, 1874, only the wife, a child, or children of the policyholder can be appointed as a nominee or nominees. Under MWP Act, the sum assured cannot be claimed by creditors even if the policyholder was under debt. On the demise of the policyholder within the policy term, the sum assured is paid only to the wife or the children.
While appointing a nominee for your term insurance policy, you must attach the supporting documents. You must provide information such as name, age, address, and the relation of the policyholder and the nominee. Also, you must explain everything to the nominee about the term insurance policy.