Do you know what happen to the Insurance Policy proceed after death of policyholder – will it automatically be passed on to a nominee or legal heirs named in a will?
If you thinking that appointing nominees for all your insurance policies, is as good as drafting a will, you may be wrong.
The Life Insurance Act specifies that the holder of a policy…. nominate the person or persons to whom the money secured by the policy shall be paid in the event of his death.
Thus, the money is paid to the nominee, but the nominee is not the only owner of the money, unless a will specifies the same.
The nominee is the one who is designated by the policyholder to receive the proceeds of an insurance policy upon the death. A nominee is merely a trustee, who must distribute the assets to the legal heirs named in a will, or as per succession laws.
Here is the legal position of the nominee in different situations:
As per Section 39 of the Insurance Act,1939, the insurance company must hand over the amount to the nominee mentioned in the policy. The nominee is expected to distribute it to the legal heirs listed in the policyholders will. In the absence of a will, individual succession laws come into play.
In 1983, in the Ms. Sarbati Devi vs Ms. Usha Devi case, the Supreme Court took a clear stand on this matter. Ms. Usha Devi was appointed the sole nominee in her husbands insurance policy, and upon his death, she claimed absolute right over the amount. However, her mother-in-law, Ms. Sarbati Devi, claimed a stake in the insurance amount.
The Supreme Court stated, A mere nomination made under Section 39 does not confer on the nominee any beneficial interest in the amount payable under the life insurance policies on the death of the insured. The amount, however, can be claimed by the heirs of the assured in accordance with the law of succession governing them.
Who is a nominee?
A nominee is the person who receives the proceeds of a life insurance plan in case of death of the policy holder during the policy term.
Can I add/change or remove a nominee?
For all insurance policies, you have an option of changing the nominee or including an additional nominee. In case a nominee dies before the policyholder during the policy term, the life assured (you) can change the nominee.
Can I nominate my child who is a minor?
Yes, but if the nominee is a minor, an appointee is required since they are ineligible to receive claims directly. You can also appoint a minor child (below 18 years of age) as your nominee. However,you need to designate an adult as an appointee for the nomination.
Your child’s date of birth, the name of his/her natural guardian and the nature of the relationship with the guardian will have to be specified.
Can I appoint more than one person as a nominee or multiple nominations?
One can have also multiple or successive nominations. While multiple nomination means that the sum assured will be divided among several nominees, successive nomination implies that the claim money will be first paid to nominee A; failing him, the insurer will call nominee B; failing B, nominee C will be entitled to the policy benefits, and so on.
In case there is more than one legal heir, the insurer will call for a joint discharge statement, waiver of legal evidence and an indemnity bond. These documents safeguard the insurer’s interest in case of any dispute on settlement of the claim.
What if I don’t have a nominee?
In the absence of a nomination, the insurance company discharges the claim amount to the Class I legal heir, that is, to son, daughter, spouse and mother. If you have a will, the proceeds will be distributed according to the wishes that you have stated in your will. This is according to the Indian Succession Act, 1925.
Alternatively, the insurance company asks for a succession certificate by the court of law, which will clearly state to whom the amount should be paid.