Nominee for your insurance policy

When insurance companies hand over claim amounts, they insist on giving it to the assigned nominee. He retains the funds, until it can be handed over to the beneficiary or the legal heir. Obviously, the nominee needs to be a trusted individual. But for most customers, filling the space marked ‘nominee’ is a mere formality. Until the money lands in the hands of one with whom their relationship has soured.

In several instances, customers forget to review or change nominations; a divorced wife, for instance, is still named as nominee. In the man does die, she would then be entitled to receive the discharge from the insurance company, despite not being the legal heir anymore. The presence of a current wife adds to the complications. Though she is legally entitled to the proceeds from her husband’s policy claim, she can only hope the ex-wife agrees to transfer the claim amount to her bank account without much fuss.

The insurance company will release the payment to the nominee, unless informed of the complexities well in advance. If there is a will, the issue can be resolved, since a will supersedes any other claim.

IF NO WILL
“It is a rare case, when an insurance company would intervene and take decisions regarding whom the claim amount should be passed on to. When matters get complicated, we usually wait for the civil courts to give their decision,” says Malathi Narasimhan, Chief Operating Officer, SBI Life Insurance.

If there is no will, the claimant could move an interim order against the company, restraining it from releasing the claim amount. He or she would then have to obtain a succession certificate from the court, proving the validity of the legal heir. However, this could easily take eight to nine months before one gets the final order.

Typically, while signing insurance applications, individuals are bound to nominate the person closest to them. The policy proposer needs to take into account the nature of relationships between the nominee and the beneficiary who would be involved in the financial transaction after his death. This is especially true if the relationship in question, is that of the deceased’s wife and his mother, a relationship often considered tempestuous.

According to estate planner Rajesh Narain Gupta of SNG partners, “In the absence of a will, subject to certain conditions, our inheritance laws consider the wife, children and parents as legal heir. Each of them can make a claim to the amount.”

The absence of a will or succession certificate can make the situation difficult when the nomination remains unchanged. The matter reaches the courts if there are more claimants. “But if there are no rival claimants, the insurance company will get the legal heirs to sign the discharge receipt jointly, after verifying their particulars with the company records,” says G N Agarwal, actuary, Future Generali Insurance.

In fact, the legal heirs also need to specify persons in whose name the cheques can be dispatched.

At times, a minor is named as both nominee and beneficiary. Until the minor turns 18, a guardian nominee needs to safeguard the funds. If the guardian nominee dies, a new name has to be put up to avoid delays. Some insurance companies now offer to hold on to the funds on behalf of the minor. They would offer interest similar to the current rates offered by bank fixed deposits until the child turns 18.

Typically, insurance companies explain the details of a nomination only on inquiry. If the nominee is also the beneficiary, the transfer of the claim amount ought to be hassle free.