A term insurance policy essentially ensures the financial future of your family members in case an unexpected event causes your demise. If, for example, you pass away and leave several dependents behind, the lump sum amount which was assured to your family (which is also known as the death benefit) will be given to a nominee, which you will have to choose at the time of you applying for the same. So, who should you choose to be your nominee? Read on to find out.
How is a nominee chosen for a term insurance policy?
When you, the prospective insurance policyholder, are asked to fill out all the details that are relevant as you buy term insurance, you have to appoint a nominee without fail. For this, people typically tend to write the names of their spouses, children, members of their immediate family, legal guardians or those of their dependents in the section that asks for the name of a nominee. In rare cases, a distant family member’s name is given. You can even select several nominees at once and assign a certain percentage of the sum assured to them, which they will receive at the time of your untimely demise.
However, if the prospective insurance policyholder has to do that, he or she has to support the same with strong reasoning, failure of which can lead to the rejection of the name of individual as a nominee. If the nominee is under the age of 18, the name of an individual must be given as an appointee. If the nominee is still under the age of 18 at the time of the death benefit being claimed, the sum assured will be given to the appointee. You can find more term insurance benefit details regarding the same on any online portal that lists term insurance plans.
Who should be the nominee of your term insurance plan?
Keep in mind that the person who you appoint as a nominee has to take care of your family’s finances and look after them as best as they can when you are gone. This means that the person should be able to budget and allocate the money they receive in Death Benefit equitably and responsibly towards the needs and wants of individual family members. You must pick an individual who has shown a sense of responsibilities towards financial matters and can allocate a disproportionate amount of time to your family in your absence as a nominee.
What happens if I fail to choose a nominee or the same passes away before me?
In the case of a sudden passing of the nominee before the end of the policy term, the insurer must be contacted immediately and he/she must be told about the changes to be made to the list of nominees. If, however, the policyholder or/and the nominees pass away and no update has been provided on the status, the law dictates that Class 1 legal heirs, which could include the likes of a spouse, children or parents, will receive the sum assured from the insurance company. This particular procedure is followed if the policyholder has not left a will behind.
In case a will has been left behind by the policyholder, the claim amount is distributed as per the terms of the will. The court issues the succession certificate, and, based on the same, the claim amount will be handed over by the insurance company. It is entirely possible that the insurance company may demand an indemnity bond, joint discharge statement or waiver of legal evidence. The structure of the process has been specified in the Indian Succession Act, 1925.