Life Insurance: Who is a beneficial nominee?

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NEW DELHI: While a nominee stands to receive money on the death of an insured, the funds cannot be used unless the nominee is also a legal heir. However, if the insured has appointed a beneficial nominee at the time of policy purchase, the said person becomes the end consumer of the money received under the insurance policy, when a claim arises.

Hence, it is essential to appoint a nominees for assets, investments, and insurance policies. This practice ensures that proceeds go to the rightful beneficiary.

As per rules, when buying life insurance, nomination is mandatory. Nominees, such as parents, spouses, and children, are now considered beneficial nominees, wherein previously, they were categorised as receivers. So, when the insured mentions beneficial nominees in the proposal form, the claim proceeds are undisputed.

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The Insurance Act has added the category of ‘beneficial nominee,’ which only includes the policyholder’s immediate relatives. As mentioned above, a beneficial nominee can be the insured’s spouse, children, or parents. So, if an insured names any one of them as nominees in a policy, they automatically become beneficial owners of the claim benefits. This also means that they are the final, undisputed beneficiaries, unlike regular nominees (e.g. siblings).

This new clause also gives the insured the option of naming multiple nominees and specifying their exact contribution to the policy. Previously, in India, life insurance companies could provide the claim proceeds to the nominee, after which the other rightful legal heir could claim the benefits from the nominee. If the legal heir claims the benefits, the insurer now only pays the benefits to the beneficial nominees. The primary source of contention is other legal heirs asserting their rights to the insurance policy’s proceeds. Thus, it is prudent to understand the significance of life insurance ‘beneficial nominees’ and appoint one to avoid this conflict.

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