Life insurance is one of the most essential financial products that one should possess. There are an array of life insurance products, but term insurance is one of the most popular and crucial policies for every individual.
The beneficiaries of such policies receive the sum assured if they die while the policy is in force. If the policyholders survive and the policy's term expires, the policy is terminated without any payment to the policyholders.
In comparison to other plans, the premiums for term life insurance are quite low, and they also offer greater coverage. Section 80C of the Income Tax Act provides tax benefits for the payment of term insurance premiums.
Nonetheless, as with every other policy nomination in the term plan, it is of the utmost importance. Many individuals have purchased multiple-term plans with a higher death benefit to ensure that their designation receives a sufficient amount when they pass away.
Today, however, we will examine a scenario in which the nominee dies before the policyholder or the end of the policy.
Nominee passes away in term plan
When someone purchases a life insurance policy, they name their family members as beneficiaries. Parents or spouses of children are eligible to receive the final proceeds (sum assured of the term plan) if the policyholder dies during the tenure of the policy.
If the policyholder has purchased a ₹5 crore policy and designated his or her spouse as the beneficiary, the spouse will receive the payout upon the policyholder's death. Imagine, however, that the nominee passes away prior to the policyholder.
This may occur if the policyholder names their elderly parents as beneficiaries or if the term plan is for 99 years. When the nominee dies while the policyholder is still alive and the policy is still in effect, the nomination becomes invalid.
Through the insurance company, the policyholder has the option to modify the nomination. Nonetheless, if the nominee dies after the policyholder but prior to receiving the claim proceeds, the proceeds are distributed to the legal heir of the policyholder.
The nomination should be updated as soon as possible if the nominee dies while the policy is in effect. The policyholder may also include one or more nominations in the policy.
Prior to purchasing a life insurance policy, there are a few things that policyholders should be aware of, despite the fact that the fundamental issue has not changed. If you modify the policy's beneficiary nomination, the most recent nominee will receive all benefits and the previous nominees will be null and void. The policyholder must provide accurate and complete information about the nominee to avoid complications when the insurance company issues the final payment. Non-family members and certain acquaintances cannot be nominated as beneficiaries because they are not financially dependent on the policyholder.
Even minors can be appointed as nominees, but a guardian known as a custodian is required if the child is younger than 18 years old. If there is no designated beneficiary in the policy, insurance companies will follow legal procedures to pay the final amount. Legal heirs have the right to receive the funds, but if there is a will, the Indian Succession Act of 1925 will govern the distribution.
Therefore, in order to avoid future conflicts between nominees and legal successors, it is always advisable to nominate a close immediate relative. During the tenure of the policy, the policyholder has the option of changing the nominee as often as desired.
Rakesh Goyal, Director, Probus Insurance Broker