Buying a Life insurance

At the time of buying an insurance policy, you are required to nominate someone to whom the proceeds would go if you are no longer around. 


The whole purpose of buying insurance is to ensure that your loved ones face the minimum possible hardship if something happens to you.

Therefore, the purpose of buying a policy is defeated if you provide wrong or incomplete information. For starters, let’s assume that the policy holder doesn't assign a nominee. 


In the event of his death, his legal heirs would get the benefit of policy but not before furnishing a succession certificate or a probate of Will, which is a cumbersome process.

Again, assuming that the policyholder didn't mention the share of nominee (that is if there are multiple nominees who are heirs too), it may lead to dispute.

Another significant aspect can be choosing a nominee. While most people nominate their blood relatives, such as parents, wife, children and siblings, instance of nominating close friends aren’t rare.


 Insurers say that it is advisable to choose a nominee(s) in such a way that there’s least possible chance of a contest over the insurance proceeds.

A nominee should ideally be someone who has insurable interest in the life of insured, say a husband or a wife. As a part of risk assessment process, insurers may deny a policy if the relationship between them doesn’t have any insurable interest. Insurance is a long term contract and nominees can be changed over a policy term. 


For instance, boy before marriage may appoint his mother as a nominee but change it to his spouse after marriage.

Further the proposer can nominate more than one individual in which case he needs to specify the percentage share of each nominee in the payout.

For hassle-free and timely settlement of claims, make sure you avoid some common mistakes and some wrong notions:

Just one nominee: Many people, in a hurry to fill up the form, appoint just one nominee even if they have multiple options. 


This could lead to complications. Suppose, a person appoints just his mother as a nominee, even when he has the option of nominating his father too. 


Now if a mother dies before the policy holder, with no change in nomination, there would be unnecessary delays in settlement on the death of the policyholder.

To avoid this, you should appoint multiple people as nominees and should always mention the percentage paid out to each. Mention their full names, addresses, ages and relationships to you.

A minor as nominee: It is recommended that you appoint a major person as a nominee because in case of minor, you need to appoint an appointee too.

If you consider it important to appoint a minor as nominee, then you ensure that you provide complete details of the appointee, including his or her full name, complete address and relationship to the nominee. The appointee loses his status when nominee turns 18.

Not informing the nominee(s): All precautions who must have taken while filling up the proposal form could come to a naught if you fail to inform your nominees about the whereabouts of policy documents. Some people refrain from telling the nominees about the policy either out of a feeling of insecurity or ignorance.

To avoid such a situation, always tell your nominees about the policy documents. Often nominees aren’t aware of existence of a policy, depriving them of money they need the most.

Not updating nominee details: There may be need to update the nominee details time to time. This may be because of change in address, or in a worst case scenario, the nominee may no longer be there to back you up.

This problem can easily be avoided as insurance company gives you an option to change the nomination details as many times as you want and at any time of the year. You only need to inform the insurer about the update by filling up the requisite form.

Mistaken notion that the nominee has absolute rights: A nominee doesn’t have absolute rights. The proceeds from life insurer received by a nominee can be attached if a court passes an order to that effect. 


Legal heirs can claim the money form nominee(s) through a court settlement.

If the nominee and the person to whom the proceedings are bequeathed in a will are two different people, then the provisions of will supersede the rights of nominee.

If you want to pass absolute rights to the nominee, prepare the Will and mention the beneficiaries. You can also issue the policy under the Women’s property Act.


The MWP Act states that the proceeds under a life insurance policy bought by a husband , for the benefit of his wife , or children or any of them, shall be payable only to the wife or the children.

Checklist while appointing the nominee for your insurance policy:

Make sure you mention full name, address and relationship with the nominee in your proposal form.

Make sure you have appointed someone who has insurable interest in you.

Make sure you appoint an appointee for a minor nominee.

Evaluate a possibility wherein you can appoint more than one beneficiary.

Be aware of the fact that a nominee doesn’t have absolute rights and legal heirs of a decreased can sue the nominee

.

Be aware of the fact that if case there are creditors; they will have first right over policy proceeds.

Be aware of fact that changes in nomination can be done any time during the duration of the policy.

You can do so by sending a request to insurance company. For this, you shall be required to submit the change in nomination’ form, duly filled, signed and witnessed. You can make this change anytime and any number of times.

To sum up, a little bit of caution on your past could prevent a lot of heartburn for your near ones if you are no longer around.