No matter where you live or work, every breadwinner’s goal is to protect their loved ones financially. If you want to protect your loved ones in your absence, you cannot overlook the importance of “Life insurance”. But if you are a policyholder, it’s you who will decide that the person will receive the benefit in case of your unfortunate demise. When you purchase a policy to secure your life, you must choose a nominee who will receive the sum assured in case of your death, according to the policy terms.
A nominee is the person you select to receive the insurance payout if something happens to you. The nominee is usually a family member, like your spouse, child, or parent. Furthermore, you can choose one or more nominees when you buy the policy, and you can change or update them later as per the policy rules.
In this post, we’ll discuss everything you need to know about nominees and beneficiaries in life insurance.
Eligibility of the Nominee in Life Insurance
Here is the list of the eligibility of the person who can be your nominee in life insurance.
- Legal Heirs
You can nominate your legal heirs such as spouse or children. It ensures that the insurance payout goes to those you want to protect and secure their financial future.
- Immediate Family Members
You can also choose siblings, parents, or other close family members as nominees. They will receive the funds to help manage and protect the financial future of the person you wish to secure.
- Extended Family Members or Friends
You can nominate friends, cousins, or extended family members in addition to legal heirs and family members, but this usually requires approval from the insurance company.
How Many Types of Nominees Are There?
Let’s take a look at the different types of nominees in life insurance.
- Beneficial Nominee
One of the popular types of nominees is a “Beneficial Nominee,” in which you can name immediate family members (such as spouses or children) as your nominees. They have the exclusive right to receive the claim amount. Make sure you choose family members as beneficial nominees because it ensures they have absolute authority to claim the death benefit.
- Minor Nominee
Another major type of nominee is the “Minor Nominee,” which refers to nominees under the age of 18. Parents often make their children nominees to secure their future in case of their absence. Under this nominee, the guardian will handle the funds until the child reaches adulthood, at which point they are legally obligated to transfer the money to the child. Furthermore, it is crucial to appoint a trustworthy person for the role.
- Non-Family Members as Nominees
Though it’s common to choose family members, policyholders can also nominate non-family members such as a friend, distant relative, or trusted employee, especially in the absence of immediate family. However, legal heirs can still claim the death benefit in such cases.
- Multiple Nominees
Another popular type of nominee has gained traction among people in life insurance policies. You can appoint multiple nominees to distribute the sum assured among several individuals.
- No Nominee
Last but not least, if you have not appointed a nominee, the death benefits will be paid to your legal heirs, legal representatives, or the holder of a succession certificate issued by a court.
What to Consider While Nominating Someone in Life Insurance?
Here is a list of the mistakes to avoid while nominating someone in life insurance. Let’s take a look at them.
- The Age of the Nominee
One of the major aspects to consider while nominating someone for life insurance is that you need to consider the nominee’s age to ensure that they can manage the insurance benefits effectively. If you choose a minor, you will need to appoint a reliable guardian to manage the funds until they reach adulthood.
- Relationship With the Nominee
Another major factor to consider is that you should select someone with a close personal relationship with you, such as a spouse, child, or parent. It helps you ensure the benefits go to someone you trust to use the funds responsibly.
- Don’t Overlook the Health of the Nominee
Ensure you consider the health of the nominee, especially if they will manage the funds over an extended period. Furthermore, you should opt for someone with good health who can handle the responsibilities.
- Financial Dependents
Another major factor to consider while choosing someone in life insurance is that you choose a nominee who is financially dependent on you or understands the needs of your dependents.
- Nomination Change Procedure
Last but not least, you should understand the procedure for changing your nominee. Remember that life circumstances can change, so make sure the process for updating your nominees is simple and clear.
How Does a Nominee Different From a Beneficiary in Life Insurance?
Let’s take a look at the differences between a nominee and a beneficiary based on the following aspects.
| Aspects | Nominee | Beneficiary |
| Definition | A nominee is designated to receive benefits on behalf of the policyholder. | Beneficiary, on the other hand, is legally entitled to inherit assets from a policy or will. |
| Responsibility | The nominee manages and distributes assets according to the policyholders’ instructions. | Speaking of the beneficiary, it directly receives and uses the benefits without any kind of hassles or responsibilities. |
| Types | A nominee can be appointed for various assets like bank accounts, investments, and properties. | On the flip side, a beneficiary is generally associated with insurance policies, retirement plans, wills, and trusts. |
| Applicability | When it comes to applicability, a nominee applies to assets such as bank accounts and property. | A beneficiary is generally linked to wills, trusts, insurance policies, and retirement plans. |
| Succession Planning | Speaking of the nominees, their roles may not transfer to the nominees’ heirs, the deceased’s instructions or legal procedures. | On the other hand, beneficiary designations can include secondary beneficiaries, facilitating asset transfer if the primary beneficiary is unavailable. |
Frequently Asked Questions
Listed below are the frequently asked questions related to the nominee/beneficiary in life insurance.
No, a nominee does not become the owner of the insurance policy. They simply manage the proceeds until they are given to the legal heirs or beneficiaries.
The policyholders must officially name nominees in the insurance policy documents. They can usually update or change this nomination during their lifetime.
Yes, you can have more than one nominee. The death benefit will be divided among the nominees or given to the surviving nominees.
Yes, you can name your child as a nominee. If your child is under 18, you must also name a guardian who will handle the claim until your child becomes an adult.
Appointing a nominee is free, but changing a nominee might incur a fee, depending on your insurance provider’s rules.
It is important to inform the nominee about the insurance policy. If they don’t know about it, they might miss the claim deadline and the death benefit may not be used as intended.
