Term insurance is a form of life coverage. This means that the situation that would allow a claim in this policy is the policyholder’s death. Hence, to make a claim and receive the death benefit, term insurance has the concept of a nominee. The goal of term insurance plans is to make sure that your family is secured in case of your sudden death. Hence, in most cases, the nominee is an immediate family member. If the nominee of the policy is set, the claim processing and disbursal of the death benefit becomes much easier.
However, often there are cases wherein the family of the policyholder ends up facing difficulties in receiving the money. This is due to the lack of clarity on the nominee of the policy. Here is a look into what exactly a nominee is and how he/she is important when it comes to the policy.
Who Is a Nominee?
A nominee is someone that inherits a said asset in case of the owner’s death. When it comes to term insurance, a nominee is a person whom the insurance company will give the benefits of the policy to. In case of your sudden death, the insurance company will consider the nominee as the point of contact for the claim settlement formalities. Most times, a nominee is from the policyholder’s immediate family, this can include spouse, children, or parents. However, many insurance providers allow policyholders to list relatives like uncles or nephews as the nominees of the policy. Hence, when you buy a term insurance policy, you should pay attention to the factor of nomination. Moreover, the person that you select as a nominee should also have policy documents to facilitate faster claim approval if the need arises.
Is There a Limit on Nominations?
No. A nominee essentially receives the sum assured as death benefit. However, if you have multiple family members that have expenses in the future, you can share the total amount among a group of nominees. This way, if you select three family members as nominees, they will receive a share of the claim amount. How much of a share each nominee gets can also be pre-determined. You can specify the amount or the percentage of the total benefit that a particular nominee will get.
It is advised to have multiple nominees in a life insurance term plan. Firstly, this helps you avoid any dispute that may arise among your family members regarding the money. Secondly, it can also happen that your nominee ends up dying before you. In that situation, another nominee can receive the claim amount. If you have your young child as nominee, the death benefit situation can be different. Being a minor, he/she cannot be given the claim amount until they are 18 years of age. Until then, the term insurance benefits will be assigned to an adult custodian that you choose. If you do not provide a nominee while buying the policy, the insurance providers assume your legal heir as the nominee.
It is important that you make a record of all the information regarding your nominee(s) for future reference. These details include the nominee’s name, contact number, residential address, and relationship with the policyholder. You need to enter these details when you fill the application form for term insurance plans in India. After you have bought the policy, if there’s a change in any information provided, you should update the insurance provider to avoid any trouble with the claim settlement.
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