Insurance policyholders need to select nominees to receive the benefits of the insurance policy when the policyholder dies. This needs to be done at the time of policy purchase. As per Section 39 of the Insurance Act, 1938, you can nominate one or more family members, including parents, siblings, spouse, or children. A nomination provides clarity regarding who should receive the funds from the policy and offers financial security to the intended beneficiary.
But what happens if the death of the nominee precedes the policyholder’s demise? Read on to find out.
Death of a Nominee: What Next?
There are a few things that follow:
The nomination is automatically cancelled. The related process of claiming the benefits becomes null and void.
The policyholder must change the nominee.
In the case of two nominees, the deceased nominee’s share will automatically be transferred to the surviving nominee.
In case of multiple nominees, the deceased nominee’s share will automatically be equally divided among the surviving nominees.
The policyholder can undo existing nominations or make alterations to it even if the nominee is still alive. For instance, they can consider a complete nominee cancellation and pick fresh nominees who may or may not be legal heirs.
Role of a Legal Heir in the Absence of a Nominee
Nominees do have the first right over life insurance claims. The insurance proceeds can go to the legal heir. If there are many legal heirs, and one is claiming the money, the rest must provide consent for the claimant to receive the proceeds in the form of an affidavit-cum-indemnity. Documents such as identity proof, claim intimation letter, discharge form, death certificate and policy papers will also need to be provided.
Legal Heirs and Nominees: Understand the Difference
The legal heir and nominee might be the same person in many cases. However, if they are different people, here’s what it means.
A nominee is a trustee and not the owner of the assets. It is also called a stop-gap arrangement, and the person is called a collector nominee. For instance, siblings are a perfect example of people who can act as trustees and accountable to the legal heirs, like your children or spouse. Nominees will be legally bound to transfer the insurance benefits to the legal heir, where needed.
A legal heir is mentioned in the will of the policyholder. If not, it will be decided as per the Indian Succession Act, 1925. They can claim their share from the nominee, who will then have to hand over the proceeds.
However, a concept of “beneficial nominee” was introduced in the Insurance Law Amendment Act, 2015. This says that if the nominee is an immediate family member, like a spouse or children, other legal heirs do not have rights to the insurance benefits.
A new nominee, after the death of the previous one, can be anybody to whom you wish to transfer the policy proceeds. It is best to appoint one, some, or all of your legal heirs as your nominees. This avoids confusion and disputes that could occur when the nominee is not the legal heir.
