A nominee plays an important role in an insurance policy, particularly when the policyholder dies during the policy term. However, many people are unclear about what a nominee actually does, whether a nominee can be changed, and what happens to the policy proceeds after the policyholder’s death.
Understanding nomination provisions can help policyholders keep their insurance records properly updated and reduce confusion for their families.
What Is a Nominee?
A nominee is a person nominated by the policyholder to receive the money secured by a life insurance policy in the event of the policyholder’s death, subject to the applicable law and policy terms.
Under Section 39 of the Insurance Act, 1938, a life insurance policyholder can nominate one or more persons during the relevant period of the policy.
Why Is Nomination Important?
Nomination provides a mechanism for the insurer to identify the person or persons nominated by the policyholder for payment of the policy money following the policyholder’s death.
IRDAI’s Master Circular on Life Insurance Products states that the policyholder should nominate the person to whom the money secured by the policy is to be payable in the event of death. It also requires insurers to provide a simple and seamless procedure for registering and changing nominations.
Can a Nominee Be Changed?
Yes. A policyholder can generally change the nomination during the relevant period before the policy matures, subject to the applicable provisions.
The Insurance Act provides for cancellation or change of nomination through the prescribed process, and the insurer is required to record the change.
IRDAI’s life insurance guidance also specifically states that the nominee can be changed during the term of the policy.
Can More Than One Person Be Nominated?
Yes. The law allows a policyholder to nominate one or more persons.
Where there are multiple nominees and they survive the life assured, the policy money is payable to the surviving nominee or nominees, subject to the applicable legal provisions.
The policyholder should therefore ensure that the nomination details accurately reflect their current intentions.
What Happens If the Nominee Is a Minor?
A minor can be nominated, but the law provides for the appointment of a person to receive the policy money on behalf of the minor during the minor’s period of minority, in the prescribed manner.
This is particularly relevant when parents or guardians nominate children under life insurance policies.
Is a Nominee the Same as an Authorized Representative?
No.
An authorized representative associated with an e-Insurance account has a different role. According to IRDAI, an authorized representative can operate or facilitate access to the e-Insurance account after the account holder’s death or incapacity, but is not entitled to policy benefits merely because they are the authorized representative.
The person must be designated as a nominee or assignee to have the corresponding rights to policy benefits.
Nominee and Assignee Are Different
A nominee and an assignee have different roles.
Nomination identifies the person or persons nominated to receive policy money in the event of the policyholder’s death.
Assignment involves the transfer of rights or interest in a policy, either wholly or partly, according to the applicable provisions.
An assignment can affect an existing nomination. Section 39 of the Insurance Act contains specific provisions concerning the effect of assignment on nomination.
What If the Nominee Dies Before the Policyholder?
The Insurance Act contains provisions dealing with situations where a nominee dies before the policy matures or before the death of the life assured.
Where the relevant nominee or all nominees die before the policy matures, the applicable policy money may become payable to the policyholder, heirs, legal representatives, or the holder of a succession certificate, depending on the circumstances.
Because the outcome can depend on the exact circumstances, policyholders should keep nomination details updated.
Does Nomination Apply to Every Type of Insurance?
Nomination rules are not identical across all forms of insurance.
The provisions discussed here primarily relate to life insurance nomination under the Insurance Act and IRDAI’s life insurance framework.
Health, motor, property, travel, marine, and other insurance products can operate under different contractual and regulatory provisions.
Therefore, the specific policy wording and applicable regulations should be considered.
Why Keeping Nomination Details Updated Matters
Life circumstances can change over time. Marriage, divorce, the birth of children, changes in family circumstances, or the death of an existing nominee may make an old nomination inappropriate.
Keeping the nomination information updated can help ensure that the insurer’s records reflect the policyholder’s current nomination.
Nomination Does Not Replace the Policy Terms
A nominee’s role should not be understood separately from the policy contract and applicable law.
The amount payable, circumstances in which benefits become payable, policy maturity, assignment, exclusions, and other contractual provisions can affect the eventual payment.
Nomination primarily concerns the person or persons designated under the applicable nomination provisions.
Final Thoughts
Nomination is an important part of life insurance planning. A properly recorded nomination can help the insurer identify the nominated person or persons when policy benefits become payable following the policyholder’s death.
Policyholders should understand their nomination details, know how changes can be made, and review those details when their circumstances change.
For specific disputes involving ownership, succession, assignment, or competing claims to insurance proceeds, the applicable policy documents and legal provisions should be examined carefully.
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