In nominee vs legal heir who gets the precedence? Court says inheritance

The Allahabad HC has clarified that a nominee on a life insurance policy is not the rightful owner of the payout but a trustee for the legal heirs, challenging common assumptions about insurance claim

Where there is a Will there's a way. But what if there is no Will? The Allahabad High Court has, in one such a case, upheld the supremacy of succession laws over the Insurance Act.

 

While hearing a petition filed by a woman from Unnao, the court held that a nominee cannot be considered the absolute beneficiary of the insurance money, emphasising that the nominee merely acts as a trustee for the legal heirs.

 

Case background 

Kusum, the petitioner, had purchased 15 life insurance policies in the name of her daughter, Ranjeeta, before she got married. Later, Ranjeeta got married to Anand Kumar, before her sudden demise in 2021. She left behind an 11 months old child.

 

 

On Ranjeeta’s death, her mother Kusum – who had declared herself as nominee at the time of purchasing policies -- sought to claim the entire insurance amount.

 

However, Ranjeeta’s husband contested the claim, and the matter reached the Civil Court. It escalated to the Allahabad High Court.

 

Court’s findings and ruling

 

The High Court ruled that while the petitioner was the nominee on the insurance policies, she did not have ownership of the policy amounts. The court upheld that a nominee’s role is to act as a trustee for the rightful legal heirs, and the insurance money must be treated as part of the deceased’s estate.

 

The court directed that the life insurance amounts be excluded from the assets list, with further instructions for the amounts to be placed in Fixed Deposit Receipts under the minor granddaughter’s name until she turns 18.

 

Expert opinions on the ruling

 

Alay Razvi, managing partner at Accord Juris, said, “A nominee under a life insurance policy is not the ultimate beneficiary but merely a trustee for the legal heirs. Nominations alone cannot override succession laws, and families with multiple legal heirs or complex dynamics must take further steps to ensure the policy proceeds reach the intended beneficiaries.”

 

Tushar Kumar, advocate at the Supreme Court, said, “This ruling underscores that mere nomination is not enough. A well-structured estate plan, including a valid Will or trust, is essential to avoid legal disputes and ensure that the insurance payout reaches the rightful heirs.”

 

Why is a Will important?

 

Raadhika Chawla, advocate at the Delhi High Court, pointed out that the ruling makes it essential for individuals to revisit their estate planning.

 

“Section 39 of the Insurance Act does not override succession laws… Policyholders should revise their estate planning by making a clear Will alongside the nomination to ensure that the intended beneficiaries receive the insurance payout without legal disputes.”

 

On practical steps for families with complex dynamics, she said, “Individuals should create a clear, registered Will aligning with the insurance nomination. The nominee should ideally be the same person named in the Will to avoid disputes.”