Worried about the financial security of your loved ones? Get yourself a term insurance plan. If you ask, "What is term insurance?" here is a definition that helps: A term insurance plan is a pure protection plan that ensures that your loved ones are taken care of in the unfortunate event of your demise during the policy term. A term insurance plan ensures that your family members get death benefit in such unforeseen circumstances.
Term insurance gets its name because it is valid for a specific period or term, and this coverage period can vary, depending on the plan chosen. A term insurance plan helps your family meet their life goals even in your absence as a breadwinner. The payout they get will ensure that their savings or wealth will not be depleted in your absence and their lifestyle can be maintained without any hassles.
You can pay premium for your term insurance on monthly, quarterly, half-yearly or annual basis, depending on your convenience and as per the product terms and conditions.
Term insurance premium is affordable as compared to other life insurance plans. What’s more, you can also claim tax exemption on premiums paid for term insurance under Section 80C of the Income Tax Act, 1961, for up to Rs 1.5 lakh per annum. You also have the option of buying riders or additional covers at a nominal extra cost. One of the variant of term insurance is return of premium (TROP), wherein the term insurance premium you have paid through the policy term will be returned at the time of maturity if the life insured survives the policy term. The death and survival benefit under return of premium variant comes with tax benefits under Section 10 (10D) of the Income Tax Act, 1961. The premiums paid for return of premium variant are eligible for tax exemption of up to Rs 1.5 lakh a year as per Section 80C of the Income Tax Act. Tax benefits are subject to provisions contained in the Income Tax Act, which may be amended from time to time.
Who is a nominee?
Since a term insurance plan is all about securing the financial future of the insured person’s dependents or family members, the need for a nominee comes into the picture. A nominee is the person who receives the death benefit in the unfortunate event of the insured person’s demise. The nominee for term insurance is decided by the policyholder. The nominee can be a family member: parents, spouse or children can be chosen as a nominee. In certain cases, relatives such as an uncle, aunt or nephews can be appointed but the insurance company needs to be convinced of the said nominee’s (relative of the insured) need for insurance.
The nominee needs to submit certain documents such as:
• Original policy documents
• Original or attested copy of the death certificate
• Death claim application form
• NEFT mandate form that has been attested by bank authorities along with cancelled cheque or the passbook of the nominees
• Nominee’s ID proof
The additional documents that may be required to prove cause of death include:
• Statement of the physician attending the insured in case of natural death and an employer certificate.
• For unnatural death, a first information report (FIR), police complaint, final police investigation report and post mortem report (PMR).
The claim is verified by the insurer before processing the application.
Importance of nominee and benefits of the nomination facility
Choosing the right nominee in your family matters because this person is entrusted with death benefits from your term insurance policy. The person should be trusted upon to put the death benefit to good use. You should weigh carefully who needs this insurance payout and accordingly nominate the person.
It is important to fill the particulars of the nominee accurately or the very purpose of nomination and the term plan is lost. These details include name, age, address and relationship between the insured person and the nominee.
Can we choose multiple nominees under a term insurance policy?
Multiple nominees can be chosen, and if the first nominee does not survive the policy term, the second nominee can be chosen. In addition, death payout can be shared among the nominees chosen.
Can we change nominee in term insurance?
This is an important question, and the answer to whether you can change the nominee in term insurance plan is yes. The relevant form in this regard can be obtained either online or offline, and the fresh details can be filled in the form before submission. Following this, the change of nominee will be updated by the insurer.
What happens if no nomination is found?
The nominees chosen by the policyholder dies during the policy term and details of a new nominee may not be provided in such a case, the insurance company may ask for documents to identify the policyholder’s legal heir(s) before making the death payout. Nomination of the nominee is mandatory.
Common nomination oversights and ways to prevent them
Ensure that you do not make some common errors while choosing the nominee so that there is no trouble for your loved ones later. Some of the most common oversights include:
• Not informing the nominee
As a term insurance policyholder, you will have to keep your nominee in the loop about your decision to nominate them. You will also need to give a copy of the policy documents to the nominee. If the nominee is unaware, they may not submit claims to the company.
• Providing incomplete details or not updating details
If the policyholder does not update nominee details or new information such as a change of address, it could cause unnecessary delays or inconvenience in case the nominee needs to submit claims later.
Buying term insurance helps safeguard the needs of your family even in your absence. It helps you ensure that your loved ones do not have to sacrifice their life goals or aspirations. Choosing the right nominee and providing accurate and updated information can go a long way in ensuring that your term insurance plan serves its purpose.