Here’s Why You Should Not Take Your Term Insurance Nominee Selection Lightly

While buying an online term plan, there are several aspects to consider. First, while you may already know what is term plan and its key benefits, have you chosen your nominee yet? Do not take the nominee selection process lightly since it is a vital part of buying a term insurance policy.

Earlier, the actual status of a nominee was shrouded in doubt, with legal heirs (those other than nominees) putting forward their claims for term insurance payouts. Yet, the Beneficial Nominee concept came about in 2015, giving more clarity on the process and ensuring that the insurance payout is disbursed only to the intended and rightful beneficiaries. This article takes you deeper into choosing a nominee for your term insurance policy, the difference between a nominee and beneficiary, and other crucial aspects.

The Nominee and its Importance

While purchasing an online term plan, policyholders nominate specific individuals to receive the sum assured payout in case of their demise within the policy period. Designated nominees include children, spouses, and parents. Here are a few points that are worth noting in this regard:

  • The policyholder chooses the nominee
  • The policyholder should submit information on the nominee. The person may/may not be a family member.
  • In a few scenarios, relatives like aunts and uncles may be called policy relatives. If an acquaintance or cousin is nominated, it is vital to showcase the concerned person’s interest in suitable usage of the sum assured amount.
  • The insurer may reject the application if it is not satisfied with the interest of any distant family member or relative

While choosing your nominee, you should also know that the term is not the same as beneficiary. These are two terms that we often confuse. Here is a guide to the same.

Nominee and Beneficiary- What is Different?

There are some core differences between a nominee and a beneficiary that you should understand before choosing a life insurance plan. The policyholder chooses a nominee for getting the sum assured amount while registering for term insurance.

Alternatively, a beneficiary is someone with the authorization/rights to manage financial assets and other related aspects for someone. For instance, a financial institution such as a bank or a legal heir may be the beneficiary in this regard.

Who Is A Suitable Nominee For A Term Insurance Policy?

Now that you know a little about the importance of a nominee and some guiding points related to the concept, it is time to ponder the important question- who is eligible or suitable to be your nominee? Here are a few things worth considering:

  • Beneficial Nominee- It is the regular practice to nominate family members like children, spouses, parents, etc. In this scenario, the declared member of the family will have beneficial ownership of the death claim. There will be no consideration of other legal heirs in this case.
  • Minor Nominee- A policyholder may nominate a minor (under 18 years of age) for a term insurance policy. However, there should be an appointee or caretaker for collecting the sum assured payout.
  • Multiple Nominees- Policyholders may also choose not one but several nominees. The insurer will divide the sum assured payout among them based on the policyholder’s instructions. If one of these nominees is a minor, another individual can receive the amount on the child’s behalf.

If you wish, you can also change it in the future. Here is a guide to the process.

Changing Nominees

There is a simple mechanism for changing it of your term insurance policy. If you pay premiums promptly, you can easily replace your nominee within the policy tenure or at the time of renewal. You can change the nominee’s details just as you change contact information or personal details. You will have to fill out a form and provide documents for verification.

Ensure that you update all vital information to combat the chances of errors while filing a claim in the future. You may also notify the insurer and get it changed in case of the unfortunate demise of the declared individual within the policy tenure.

Hence, be careful at the time of purchasing an online term plan. Choose your nominee after suitable deliberation. You will have to provide details like your age, name, address, and relationship. The nominee should be aware of the policy, and all necessary details should be updated, including changes in addresses or contact numbers.

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