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Accidents can sometimes result in the tragic loss of an entire family, including the life insurance policyholder, the nominee (typically the spouse), and even the children. In such emotionally and legally complex scenarios, how are insurance payouts made? Life insurance and legal experts explain the process and precautions policyholders can take.
When both policyholder and nominee pass away
If the policyholder and the nominee (spouse) die in the same accident, the insurance payout does not lapse. “In such cases, the benefit is directed to the legal heirs of the life assured,” says Sanjay Arora, chief of operations, Tata AIA Life Insurance.
Succession laws govern the claim process. “Additional documents like the legal heir certificate or the succession certificate may be required,” says Arora.
These laws differ based on the religion of the deceased. “If a Hindu male dies intestate (without a will) in an accident along with his spouse (who was the nominee), the policy claim proceeds devolve upon the remaining first-class heirs — that is, the mother and the children (and families of any predeceased children),” says Rahul Sundaram, partner, IndiaLaw.
For a Christian male dying intestate, the proceeds are distributed equally among the surviving children. For a Muslim male, the proceeds devolve upon the surviving children according to Sharia law applicable to their sect.
When the entire nuclear family passes away
If a Hindu male dies intestate in an accident along with his spouse and children, the policy proceeds go to the mother. “In case the mother is predeceased, the policy claim devolves upon Class II heirs,” says Sundaram.
For Christians, Section 42/43 of the Indian Succession Act specifies that if a male policyholder, his spouse, and children all die, the proceeds are passed on to the father. “In case the father is predeceased, it shall devolve equally among his mother and siblings,” says Sundaram.
If a Muslim male dies along with his spouse and children, Sharia law allocates five-sixths of the proceeds to the father and one-sixth to the mother. If the father is predeceased, the proceeds devolve upon the mother, sister and brother in proportions defined by the applicable Sharia law of the sect to which he belongs.
What role does a will play?
If a will exists, the executor or holder of letters of administration acts on behalf of the estate. “The representative of the estate (the executor or the person holding letters of administration) can submit the (probated) will or letters of administration to establish title to receive the proceeds. Thereafter, the representative disburses the proceeds to the legal heirs,” says Shabnam Shaikh, partner, Khaitan & Co.
A probate (court validation of a will) is usually not required, except under specific conditions outlined in Section 57 of the Indian Succession Act, 1925. “If the proceeds are above a certain threshold, then certain insurers may insist that the will be probated and the executor’s title as the representative of the policyholder’s estate be determined by a court of law,” says Shaikh.
If a will has not been prepared, the legal heirs would have to establish that they are the rightful legal heir. “They would have to obtain a succession certificate to receive the proceeds,” she added.
Contingent and multiple nominees
Policyholders should consider naming a contingent or secondary nominee as a safeguard. “This is typically allowed only when the primary nominee is a minor. In such cases, the policyholder must appoint an appointee — a responsible adult who will manage the claim proceeds on behalf of the minor until they reach the age of majority (18 years),” says Arora.
Policyholders may also appoint multiple nominees and define their respective shares. “If one nominee predeceases the policyholder, the policyholder should update the nominations,” says Arora.
Plan nominations carefully
Clear and updated nominations ensure smooth disbursal and help avoid disputes. “Appoint nominee (or nominees) with clear percentage allocations during the application stage. Also, life events such as marriage, divorce, childbirth, or the death of a nominee should prompt immediate updates to the nomination details,” says Arora.
Nominees and close family members should be informed about the existence and location of the policy. If the nominee is a minor, an appointee must be named to manage the proceeds until the nominee reaches the age of majority.
Policyholders may also appoint beneficial nominees. “Under the Insurance Laws (Amendment) Act, 2015, immediate family members—spouse, children and parents—can be designated as beneficial nominees. This gives them absolute rights to the claim amount and protects them against legal challenges from other heirs,” says Arora.
Sundaram recommends nominating a first-class heir as the nominee.
Policyholders may also appoint someone other than a legal heir. “However, disputes may arise after the death of the policyholder between the legal heirs and the nominee,” says Sukrit Kapoor, partner, King Stubb & Kasiva.
What to do in case of disputes among legal heirs
The executor or the legal heirs have to validate their rights by obtaining a probate, letters of administration, or succession certificate. “The title of multiple potential legal heirs is decided at that stage itself by the court of law,” says Shaikh.
Legal heirs are often required to sign indemnity claims in favour of the insurer. “This is done to safeguard the insurer’s interests and to protect them from any future disputes that may arise,” says Shaikh.
Finally, one point to be remembered is that the nominee receives the claim amount under the Insurance Act, but does not become the beneficial owner. “The nominee is not the beneficial owner of such proceeds and only holds it in trust for the legal heirs. The nominee is required to distribute the proceeds according to the existing inheritance laws,” says Sundaram.
Life insurance claim: Steps, documents, timelines
- The nominee must notify the life insurer promptly through online portals, WhatsApp, email, phone, or by visiting a branch
- Key documents to be submitted include the claim form, death certificate, KYC and bank details of the beneficiary
- In case of unnatural death, police and post-mortem reports and any medical records are also required
- If the claim does not require investigation, insurers must settle it within 15 days
- If the claim requires investigation, insurers have a maximum of 45 days to complete the process
