A nomination is an important aspect of life insurance. It is common to nominate a person- usually spouse, child one parent -while taking an insurance policy. The nominee is the person who is entitled to the benefits which the nominator would have been entitled to, in case of demise of the nominator. The nominee is statutorily recognized as a payee who can give a valid discharge to the insurance company for the payment of policy money.
Life insurance policies are long-term contracts and the benefits are more complicated as they are dependent on the happening or not happening of some pre-defined insured events. The contingent nature of the benefits makes it all the more important to clearly define the beneficiaries. Nomination and assignment are the tools conferred upon the policyholders to effectively manage the benefits accruing under a life insurance policy.
Nomination is a right given on the life insurance policyholder to appoint a person or persons to receive the policy money in the event of the policy becoming a claim by death. Any policyholder, who is a major and the life insured under a policy, can make a nomination. A nominee is the person designated by the policyholder to receive the proceeds of an insurance policy, upon the death of the insured. Simply put, if a person who is insured dies, the person in whose favour the nomination is effected is entitled to receive the policy proceeds. The person in whose favour the nomination is effected is termed as nominee. Policy proceeds under a death claim typically comprise the sum assured and the bonuses accrued, if any…. While nomination is an authorization to receive the policy money in the event of death of the life assured, it does not give the nominee an absolute right over the money received to the exclusion of other legal heirs. Further, the nomination can be revoked or cancelled at any time during the lifetime of the policyholder at his will and pleasure or by a subsequent assignment. The details of the nominee will typically include full name, age, address of the nominee and nominee’s relationship with the life assured. One can have multiple persons as nominees and can also specify their shares of the policy proceeds in percentage terms. Section 39 of Insurance Act, 1938, deals with such nomination.
Nomination is incorporated in the text of the policy at the time of its issue. After the policy is prepared and issued, if no nomination has been incorporated, the assured can ordinarily effect the nomination only by an endorsement on the policy itself. A nomination made in this manner is required to be notified to the insurance company and registered by it in its records. A nomination is not required to be stamped.
Any change or cancellation of nomination should be given in writing only by the insured. In case of joint life policies, the nomination can only be a joint nomination. Nomination cannot be made in favour of a stranger. A nomination in favour of wife and children as a class is not valid. Specific names of the wife and children should be mentioned.
The nomination can be made in favour of successive nominees, i.e., nominee ‘A’, failing him to nominee ‘B’, failing whom nominee ‘C’ etc. In such cases, the nomination in favour of one individual in the order mentioned is considered. Where the nominee is a minor, an appointee has to be appointed to receive the money in the event of the insured’s death.
The policyholder can change nomination as many times as he wants. The same can be done using a ‘change of nomination form’ from the life insurance company. The nominee himself cannot influence the policy. In the currency of the policy and the lifetime of the life assured, the nominee has a little role to play. The nominee comes into the picture only after the death of the life assured, where he can claim the benefits under the policy.