Nominee in Term Insurance Policy

A nominee has a vital role to play in a term insurance policy. After the untimely demise of the life insured, the death benefit is paid to the nominated person under the term insurance plan. The nominee is chosen by the life insured/policyholder while applying for the term insurance plan. Nomination can be made anytime during the policy term, however, it must be done before the maturity of the life insurance policy.

Types of Nominees

Following are the different types of nominees that can be appointed under a term insurance policy:

• Beneficial Nominees: If the nominee appointed is a parent, spouse, child (an immediate relative of the policyholder) then the nominee is referred to as "Beneficial Nominee". The death benefit amount is provided to the beneficial nominee only.
• Minor Nominees: A nominee who is under the legal age that is 18 years of age is known as a minor nominee. The life insured/policyholder can choose to nominate a person who is under the age of 18. In this situation, the policyholder is required to declare an appointee who can receive the claim amount on behalf of the minor nominee’s behalf under the term insurance policy.
• Changing Nominees: A policyholder can change the nominee of the term insurance plan if they desire to. For this, the policyholder has to indulge in paperwork so as to change the nominee before the maturity of the term insurance policy.

Benefits of Nominee in a Term Insurance Policy

Following are the benefits of appointing a nominee under your term insurance policy:

• Accomplishes the Need of Coverage: The primary motive of purchasing term insurance is to ensure that your family is financially secured in case of your unpredicted demise during the policy term. Appointing a nominee can fulfill the need of purchasing term insurance. It is important to appoint a nominee under your term insurance policy so that they can receive the death benefit in case of your unforeseen demise. You can appoint your family members as a nominee, you can also appoint multiple nominees under the term insurance policy.
• Policyholder can Appoint Multiple Nominees: Policyholder has the flexibility to appoint more than one nominee under the same policy. To avoid potential disputes regarding the death benefit the policyholder can decide to appoint more than one nominee under his/her term insurance policy.
• Nominee can be Changed During Policy Term: A nominee can be appointed at the time of policy issuance, but the nominee can be changed anytime during the policy term. The policyholder has the flexibility to change the nominee any time during the policy term.

How to Choose a Term Insurance Nominee?

A term insurance nominee is responsible for claiming sum assured in addition to other bonuses on the death of the policyholder. Therefore, it is advisable to appoint a responsible individual as a term insurance nominee. A nominee can be anyone who you, as a policyholder, think will be able to take the responsibility of your surviving family members in your absence.

A policyholder can appoint any family member as their nominee. A nominee can either be the wife, husband, mother, father, son, or daughter. Moreover, a life insured also can appoint any distant relative of theirs as a nominee. It must be noted that it is important to prove the insurance interest in case a policyholder chooses a distant relative as the nominee. In the event of failure of establishment of the same, the insurance company can reject the application. The details of the nominee must be provided in the most accurate manner whether applying for a policy online or offline.

Mistakes to Avoid During Policy Nomination

Needless to say, term insurance policy nomination is an important step. A term insurance policyholder can make multiple mistakes while appointing their policy nominee. In other words, if done incorrectly, it can cost the policyholder in a magnificent way. If you too are going to appoint a nominee for your term insurance policy, there are a few mistakes you must be aware of beforehand. Check below mentioned mistakes that you must avoid so that you can end up making the right policy nomination:

• Single Nomination: It is common for policyholders to provide a single nomination for their insurance policy due to the fact that they do not want to appoint more than one person for nomination. In a case like such, if the nominee unfortunately passes away and the policyholder does not update the nominee details, the claim settlement process can end up getting complicated. The insurance company can find it extremely difficult in identifying the legal heir of the life insured and may waste a lot of time in concluding the process. This issue can be prevented by appointing more than one nominee. Moreover, by allocating a specific percentage of sum assured to each of the nominees.
• Minor Nominee: If the policyholder fails at appointing a custodian to a minor nominee, the claim process will not be taken further and would ultimately end up in the minor not receiving any financial death benefit. To prevent the hassle, a policyholder must always appoint a custodian if their nominee is a minor. Moreover, they must also submit fully verified information about the custodian to the insurance company.
• Not Updating Nominee Details: Not updating the nominee details in a timely manner is also one of the key mistakes that most term insurance policyholders make. It is the responsibility of a policyholder to update existing details of the nominee including name, address and other relevant information as soon as possible from time to time. Quick updation must also be done in case of death of the current nominee during the policy term.
• Lack of Information to Nominee: A term insurance policy nominee must always be aware of the policy details so that the nominee does not fail in submitting the claims to the insurance company within the desired time frame.
• Misconception of Nominee Rights: Multiple issues can arise if the nominee has a misconception about their rights. It is not uncommon for a nominee to assume that only they claim the right to the death benefit in the event of the policyholder's death. However, in case the nominee name and the legal heir declared in the insured’s succession will be different, then the legal heir will be the ultimate claimant of the policy death benefit. In case the policyholder wants the nominee to have complete rights over the term plan benefits, they must provide a well-prepared will declaring absolute rights of the death benefit to the policy nominee.