Nominee in Insurance Plan: A Comprehensive Guide for 2025

Onsurity Editorial
January 7, 2025
11 min read

Table of Contents

Nominee in Insurance

Every bank, financial, or insurance enterprise you go to will make it compulsory for you to name a nominee. Doing so ensures that the benefits of the said service passes on to the right person.

Knowing the implications involved with selecting nominees and the duties and roles associated with this nomination is important because it can ease the process of granting your loved ones financial protection and peace of mind, even in the aftermath of a tragedy.

This guide outlines all you need to know about selecting a nominee for an insurance policy. Keep Reading!

What Is a Nominee in Insurance?

An individual named by the policyholder to receive the policy’s benefits in the event of their death is known as a nominee. This is typically, though not always, a family member who is charged with protecting the policyholder’s dependents’ financial interests.

For instance, someone chooses their spouse as a nominee in life insurance. Upon the policholder’s death, the spouse will receive the claim amount and can then use the payout to meet the needs of themselves, their children, and their dependent parents, if any.

Also read: What is a Health Insurance Card?

Role of Insurance Nominee

A nominee is the rightful recipient of the policy benefits in case the policyholder passes away during the policy’s term. That said, their job is more than merely collecting the sum assured.

They’re responsible for wisely using the money received to meet the policyholder’s outstanding responsibilities. This includes meeting the financial needs of the family or dependents or settling any outstanding financial liabilities like medical expenses, loans, or more.

Please note that the nominee has access to the funds only after the policyholder’s demise. If the nominee is a minor individual, their legal guardian acts as a trustee for the fund till they turn of legal age.

Types of Nominees in Insurance

Nominees can be classified into four broad categories, each with specific implications governing how the policy benefits are distributed:

1. Beneficial Nominee

Usually, beneficial nominees are someone from the immediate family, such as their spouse, parent, or child. In instances where a beneficial nominee is chosen, the insurance money goes directly to the nominee. Such benefits are not extended to any other rightful heir.

2. Minor Nominee

Any nominee who is younger than eighteen is considered a minor.

The adult beneficiary cannot use the amount for their personal use. They are responsible for managing the funds for the benefit of the minor. This means they can use the money for the minor’s needs, such as education, housing, medical expenses, or other essential expenses.

The specific rules and regulations regarding the use of insurance benefits for minors can vary depending on the jurisdiction. It is important to consult with an attorney or financial advisor to understand the specific rules that apply to your situation.

This guarantees that the said amount will be safeguarded from any potential abuse until the said person comes of age.

3. Non-Family Nominee

A non-family nominee is an individual who is not related to you by blood or marriage but is appointed to receive the death benefit from your life insurance policy. This is a great option is available when you don’t have immediate family members or if you prefer to nominate someone you trust, even if they are not related to you.

4. Multiple Nominees

More than one nominee can be chosen, and each nominee can receive a share of the death benefit. This is particularly useful for policyholders looking to divide the insurance payout among many kin.

For instance, a policyholder can allocate 50 percent of the death benefits to the spouse so that immediate needs are met. The other 50 percent can, therefore, be divided equally between the two children to ensure that they are well taken care of in the future.

Determining these percentages ensures that the payoff is disbursed just as the policyholder planned and helps prevent conflicts.

5. Contingent Nominee

In the event that the primary nominee dies while the policy owner is still alive, the contingent nominee, also known as the backup or secondary nominee, is entitled to the death benefits upon the policyholder’s death.

For example, you could name your spouse as a primary nominee and your child as the contingent nominee.

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Importance of Nominating a Nominee in Life Insurance

Let’s examine why you ought to do so in the first place now that you know who you can select as your nominee:

Simplifies Claims Processing: Designating a nominee guarantees a smooth distribution of payments to the appropriate individual and removes any legal issues.

Protects Future Dependents: By providing assistance with essential costs like debt, healthcare, and education, the nominee guarantees your loved ones’ financial stability.

Avoids Conflicts: Where there is no nominee, family members may dispute how the insurance benefits are distributed. Having a nominee in place helps to prevent these conflicts and arguments.

Upholds Financial Legacy: Assigning a nominee grants control over who will manage and utilise the death benefit, especially when you have specific requirements and intentions regarding its usage.

Assures Legal Compliance: A nominee must be named to prevent delays in the processing of claims and to ensure that the benefits do indeed go to the intended recipient

Also read: Group Term Life Insurance for Employees

Who Can Be Nominated as a Nominee?

It is important to understand all the aspects related to choosing and naming a nominee for an insurance policy and even more so, knowing who to name as the beneficiary in a legal and relevant way.

In other words, the particular options that can be chosen for allocation of insurance cover in case of death of the policyholder depend greatly upon the selection of a nominee.

1. Eligible Nominees

Spouse: Common choice to secure the financial future of the surviving partner.
Children: Ensures their education or future expenses are covered.
Parents: Ideal if they depend on the policyholder for financial support.
Siblings: Suitable when there are no immediate dependents.

2. Minor Nominees

Minors can be nominated, but a guardian must be appointed to manage the proceeds until the nominee turns 18.

Often chosen by parents to secure the child’s future needs, like education.

3. Non-Family Members as Nominees

Non-family members can be nominated if they have a relationship with the policyholder. This typically includes close friends, or people you trust, or other people who are not related by blood or marriage.

4. Multiple Nominees

You can nominate more than one person and split the benefits among them. This helps in cases where multiple dependents (e.g., spouse and children) need to share the proceeds.

How to Nominate a Nominee in Your Life Insurance Policy?

In India, you have the flexibility to nominate various individuals—friends, family members, people you trust, depending on your personal preferences and family structure.

Let’s explore how you name this nomination and how you can update this information:

Nomination Process

The process of selecting your nominee is quite simple. To ensure that your desires are met, it must be done carefully.

Here is a brief, step-by-step tutorial on designating a beneficiary under your life insurance policy:

Choose the person who will get the death benefit. A family member, minor, non-family member, or multiple people to be nominated.
Give the insurance company all pertinent information about the candidate. This contains information like the nominee’s full name, age, relationship to you, and phone number.
Provide photocopies of the nominee’s identification documents, including their passport, voter ID, Aadhaar card, etc.
Fill up the nominee section in the life insurance policy contract. This can be done physically or online.
Verify the details of all nominee particulars to be submitted to the insurance organisation.

Also, Read: What is Group Term Life Insurance?

Changing Nominee details

You may decide to modify your nomination in light of life events like marriage, childbirth, etc. It’s a usually a good idea to regularly check the information your nominees provide.

Periodic review allows you to update necessary details if anything changes, such as their contact information. If you feel that they are no longer suitable or they are unavailable, you can also change your nominee entirely.

Here’s how to add or change the nominee:

To acquire the nominee change form, get in touch with your insurer.
Fill out the nomination details form with the new candidate’s name, relationship, and contact data.
Show the new nominee’s identification, including their passport, Aadhaar card, and voter ID.
If the previous nomination has to be withdrawn, follow the insurer’s instructions and substitute the new applicant.
Before sending it to your insurance, double-check all nominee details.

Updating information for current nominees is a far simpler procedure. Here’s how it can be done:

Get the nominee update form and fill out the details as you need them to be.
Provide the nominee’s identification documents if necessary.
Submit the form with the updated information after verifying all the details.
If the insurer has an extensive digital infrastructure, the update can be done simply by changing the respective fields on their website or application.

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What to Consider While Selecting a Nominee for a Life Insurance Policy?

Take into account the following elements while selecting the right nominee for a life insurance policy:

Eligibility: Check if the nominee is legally eligible to assume the role. Parents, spouses, and children are examples of direct family members who are typically simple to identify as suitable nominees. Despite the possibility of nominating non-family members, consider the possible legal consequences.

Relationship: Take into account how close you and the nominee are. You should trust that the nominee would use the settlement for the benefit and welfare of your dependents, especially if they are not blood relatives.

Life Events: When a nominee gets married, has a child, gets divorced, or passes away, you should update and evaluate their information. The claims process may be hampered by outdated information.

Financial Responsibility: You want someone who carries on your financial legacy. Choose someone who can manage the death benefit fund responsibly.

Health: The candidate should be in excellent physical and mental health. After all, individuals could find it challenging to handle money or care for their dependents if they have health problems of their own.

Personal and Professional Background: Select a candidate that has no criminal history, a solid work history, and a positive reputation. As they manage the financial obligations as a nominee, this will increase your confidence in them. It is a good practice, especially in the case of non-family nominees.

Minor Nominee: In case you choose a minor as a nominee, appoint a legal guardian to manage the insurance payout until they turn 18. Failing to do so may delay the process of raising claims.

Financial Dependents: Indicate the percentage that each nominee will receive when choosing multiple nominees to avoid any future disputes. This is particularly crucial when you have a large family with multiple dependents and a large estate.

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Nominee Rights and Responsibilities

As the nominee in a life insurance policy, the following rights and responsibilities apply to this role:

1. Entitlement to Benefits

In the case of the death of the insured individual, the nominee named in a life insurance policy is eligible for the death benefit. However, this is only the case if he or she commences the claims process, which requires, among other things, the death certificate of the insured and other similar documents in order to be able to receive such benefits.

2. Responsibility to Submit Documents

The nominee must provide the necessary documentation to claim the death benefit. The documents could be identity proofs such as Aadhaar cards, passports, or death certificates.

3. Trustee, Not Owner

In cases other than beneficial nominees, the nominee acts as a trustee and not an automatic owner. Receiving the death benefits and allocating the money to the policyholder’s legal heirs in accordance with their instructions is their responsibility as trustees.

Common Mistakes to Avoid When Nominating

When choosing a nominee, steer clear of these typical blunders:

Not Updating the Nominee: When a nominee’s details are not updated following a life transition, such as a marriage or divorce, it may lead to disagreements or hold up the payout process.

Nominating a juvenile Without a Guardian: A court may have to appoint a guardian, which could prolong the claim process if a juvenile is nominated without one.

Ignoring Tax Implications: Consider any tax obligations or liabilities while choosing your nominee so that they do not add undue financial strain to the nominee.

Selecting Based on Sentiment: Instead of selecting someone purely on the basis of sentiment, choose someone who can responsibly manage the death benefit.

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What Happens If the Nominee Passes Away?

If the nominee of an insurance policy passes away before the policyholder, it can complicate the claims process.

Here are the main points you should note:

1. Delay in Processing Claims

The process of obtaining a claim sometimes gets postponed, especially where the deceased nominee is involved, as the insurance company has to establish who the benefits crisis should be directed to. This can add to the stress of an already trying period for the family of the deceased policyholder.

2. Nominating a Successor

If one of the nominees dies, the preference of the insured person should be updated in the policy concerning the nominees without delay. This is important so that the benefits are granted to the right person and shall avoid any issues related to the law.

3. Legal Considerations

Where a new nominee is not appointed, the proceeds of the insurance policy may be paid out according to the inheritance laws. This could cause the death benefit to be held temporarily while the beneficiaries or nominees are being identified, which delays the process.

Moreover, it may cause disagreements among relatives about how to allocate the property after the individual’s death.

Wrapping Up

One crucial step in protecting your family’s financial security is adding a nominee to your life insurance policy. Meeting your expectations depends much more on selecting the appropriate nominee.

To safeguard your family’s financial future, you must include a nomination in your life insurance policy. However, selecting the right nominee is much more important if you want to accomplish your goals.

At Onsurity, we believe it’s critical to make well-informed choices to protect your family’s future. Group health insurance, wellness initiatives, and primary care services, including health screening, telemedicine, and pharmacy benefits, are just a few of the many healthcare alternatives we provide to our employees.

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If you are an existing customer or member of Onsurity, update your nominee now!