When you buy term insurance, most of the focus and calculation goes on arriving at the right coverage amount, the premium you have to pay, and buying riders and add-ons. While engrossed in these aspects, which are important of course, it is important to mention the nominee name without which the policy would not be issued. Having a nominee amongst your loved ones ensures that they are able to enjoy the benefits of the policy in case of any unforeseen event that could occur to you.
On the contrary, you must give proper thought and planning when choosing a nominee for your term insurance plan. There may come a time due to incorrect selection or life circumstances, you may be in a position where you need to change the nominee. So, can we change nominee in term insurance? The answer is yes, but there are certain things to keep in mind and processes to follow.
What is term insurance?
Term insurance is called the purest or simplest form of life insurance. Fortunately, it is also less expensive as compared to other types of insurance plans. The word “term” stands for the specific number of years – 10 years, 15 years, 20 years, etc. – during which the term insurance policy remains in force subject to paying the renewal premium on time. A term insurance policy assures a predetermined sum (sum assured) of money that is paid to the nominee in case of the life assured’s death.
The nominee of the life assured only receives the death benefit if the term insurance policy is in force and there are no lapses in premium payments. For example, if the tenure of the term insurance plan is 15 years and the life assured dies after 16 years of purchasing the policy, his family members are will not be eligible for receiving death benefit, as the term plan has already terminated due to expiry of its term. The same holds true if the term insurance plan has lapsed due to non-payment of premium. Therefore, you should pay your premiums on or before the due date and purchase a term insurance for the maximum tenure.
What is nominee?
A nominee is one who receives the proceeds of the death benefit after the death of the life assured once the claim is approved. The nominee has to be mentioned by the life assured while submitting the term insurance proposal form.
Types of nominations
• Beneficial nominee
According to Insurance Laws (Amendment) Act of 2015, life assured can assign a spouse, parent or child as a beneficial nominee. While the term Beneficial Nominee is not defined in the amendment of Section 39(7), the Section itself provides for the concept of Immediate Family being beneficially entitled to the Sum Assured. Further, the only ground for challenge is proving that the holder of the policy did not have the right to make such beneficial nomination.
• Multiple nominees
If you feel that more than one member of your family deserves to be the beneficiary in case of your death, you can also opt for multiple nominees. In that case, you have to specify the percentage share on the death benefit for each nominee.
• Minor nominee
In case the nominee is a minor, you have to assign an adult as a custodian of the benefit amount until the nominee reaches 18 years of age.
• MWP Act
Normally, your creditors have the first right to the proceeds of the term insurance benefits even after your death. In fact, their rights supersede even the rights of a beneficial nominee. However, you can prevent this from happening if you buy term insurance under Section 6 of the Married Women’s Property (MWP) Act 1874. With MWP, you can ensure that your family members will receive the term insurance proceeds even if you have outstanding debt.
Can we change nominee in term insurance?
Yes. In fact, nominee changes can be done multiple times during the term of the insurance policy. Change in nominee can only be carried out by the life assured. Sometime errors may occur while mentioning a nominee when you buy term insurance in a hurry or you do not give due importance to nomination rights. However, once you have realized your mistake, you can correct it by changing the name of the nominee associated with your term insurance plan. We will discuss how that can be done below.
Process to change nominee for your term insurance policy
The process to change the nominee name of a term policy is a simple one. Here is a systematic guide of the process:
● Firstly, you need to fill the Change of Nomination form with your insurer. You can fill this form online or offline.
● Submit the filled nomination form with name of the new nominee
● Get an online or offline acknowledgment letter/slip/number from the insurance company to avoid any claim delays in the future.
When you are buying term insurance for the protection of your family’s financial future, you cannot and should not be careless about the nomination part. This is especially important if you have more than one legal heir.
The purpose of getting term insurance protection is defeated if the intended person does not receive the benefit. We should never underestimate the significance of nomination when purchasing term insurance. You must be sure about who is the rightful heir or beneficiary of the term insurance proceeds when you are not here. A little carelessness in such matter can lead to a lot of headache and heartache for your loved ones. Therefore, be careful about the process of nomination or the act of changing nominee in your term insurance plan.