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Rules of Nomination in Life Insurance

IndianMoney.com Research Team | Updated On Friday, January 15,2016, 11:43 AM
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Rules of Nomination in Life Insurance

 

Why do you avail a life insurance policy? The answer is simple. The money got from a life insurance plan in case of your untimely demise, will be used by your family, to lead a decent quality of life. Your spouse will get money to run the family and take care of household expenses. Your children will get quality education. Your family will be able to maintain their current lifestyle, even in your absence. If you are availing a life insurance plan to take care of your family in your absence, then you better study the rules of nomination, in life insurance.

What is a nominee in a life insurance plan?

You have availed a life insurance plan. When you avail a life insurance plan, you have to specify a nominee for this life insurance plan. Your nominee enjoys the money got from the life insurance plan, in case of your untimely demise, within the tenure of the life insurance plan.

You have appointed a nominee for your life insurance plan. You believe that the money from the life insurance plan goes to your nominee, in the event of your untimely demise. You could not be more wrong. The nominee you appoint for your life insurance plan, is just a caretaker of the money got from the life insurance plan. Your nominee transfers the money to your heirs, if mentioned in your will. If you have not made a will, then the life insurance proceeds are distributed as per the succession laws of India. All this changed after the Insurance Laws (Amendment) Act, 2015 was passed. A new concept called beneficial nominee was created. So what is a beneficial nominee?

What is a beneficial nominee in a life insurance plan?

If you nominate your parents, spouse or your children in the life insurance plan, then the Insurer will pay the death benefits of the life insurance policy to this nominee, called the beneficial nominee. No other legal heirs can claim the money from your life insurance plan, in case of your untimely demise. Now the nomination of the life insurance policy is complete. You know who will get the money from your life insurance plan. If a life insurance plan has a maturity date after March 2015, then these new rules apply.

What about the maturity amount of an endowment life insurance plan?

You have availed a term life insurance plan. On your untimely demise within the tenure of the term life insurance plan, your beneficial nominee gets money called the sum assured. If you appoint your parent, spouse or child as the beneficial nominee, they get the money from the term life insurance plan. If you survive the tenure of the term life insurance plan, no money is paid either to you or the beneficial nominee. There is no maturity benefit in a term life insurance plan.

An endowment life insurance plan pays you a maturity benefit, if you survive the term of the plan. The maturity benefit is the sum assured and the bonus amounts accumulated under the plan. Before the Insurance Laws (Amendment) Act, 2015, if you/policyholder survived till the maturity of the plan but died before collecting the maturity amount, the nominee could not collect the maturity amount. The nominee could collect the money only if you/policyholder, died within the tenure of the endowment life insurance plan. After the Insurance Laws (Amendment) Act, 2015, the maturity amount can be collected by the beneficial nominee, even if you/policyholder survived till the maturity of the plan, but died before collecting the maturity amount. No legal heirs can claim the maturity benefit.

You can now relax knowing your family’s needs are well taken care, if you avail a life insurance plan.

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IndianMoney.com Research Team

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