Nomination is one of the many term insurance benefits that you can take advantage of when you purchase a term insurance plan. In fact, it is crucial to the core idea of term insurance itself, because the very purpose of purchasing a term plan is to ensure that the financial benefits offered under the policy protect your dependents. So, they will receive the benefits if you nominate them under the term insurance plan.
But if you’re a beginner to the whole concept of term insurance, you may be unsure of what a nominee is. Let’s find out what the term ‘nominee’ means.
What is a Term Insurance Nominee?
A term insurance nominee is an essential part of every life insurance plan. And a term insurance plan is no different. When a person purchases term insurance, they have the right to appoint a nominee. This term insurance nominee is the person who will receive the term insurance benefits in case of the life assured’s demise.
Policyholders also have the option to nominate multiple beneficiaries in the proposal form. In that case, the policyholder also has to specify the percentages according to which the sum assured will be divided between the nominees assigned to the policy.
Generally, term insurance nominees are family members who are dependent on the policyholder. This is because in case of the policyholder’s demise, the death benefits will be paid out to the nominee directly. That will make it easier for the dependent family members to cushion the financial blow of losing their sole or primary source of income.
Assigning a nominee is a quick and simple process, particularly in the case of online term insurance. You simply need to fill in the relevant details and submit the information online.
3 features of Term Insurance that makes life easier on the Term Insurance Nominee
Term insurance offers many benefits for nominees. In fact, most of the features of term insurance plans are designed to ensure that the nominees have financial security in place. Here are three key features of term insurance that make life easier on the term insurance nominee.
• Death Benefits
Many families rely on just one or two members for their source of income. When the sole or the primary earning member of a family passes away unexpectedly, it may leave the surviving members without any financial support to fall back on. Term insurance can be of great help here. That is because term plans pay out the sum assured as death benefits to the nominee, thereby giving them the financial cushion needed during such uncertain times. With this financial safety net to fall back on, the surviving members of the family can continue to meet their daily expenses and fulfil their life goals as planned.
• Tax Benefits
For nominees who are worried about the tax implications of receiving the death benefits offered by term plans, there’s reason to relax.
Term insurance tax benefits come to their rescue. As per section 10(10D) of the Income Tax Act, 1961, the sum received as death benefits under a term plan is exempt from tax subject to the conditions specified therein.
For example, say a person purchases a term insurance plan for a certain premium amount with a sum assured of Rs. 1 crore and a policy term of 30 years, and names his spouse as the nominee. 5 years later, the person passes away unexpectedly. In this case, the nominee - that is, the person’s spouse - receives the sum assured of Rs. 1 crore. This sum is tax-free, provided the premium and sum-assured amount meet the criteria specified as mentioned in section 10(10D) of the Income Tax Act, 1961.
• Flexible Pay Out Options
Many term plans also offer flexible pay-out options, meaning that the nominees can receive the benefits as a lump sum amount, or as periodic pay-outs. These pay-out options can also be customized as per the nominee’s needs and can be a combination of a lump sum pay-out and monthly income, or a lump sum pay-out with increasing monthly income depending upon the featured of the product chosen. Based on the financial needs of the surviving members of the family, the pay-out options can be chosen.
With so many benefits for nominees, term insurance plans are one the simplest and most cost-effective products available in the insurance market. If you have dependents in your family, make sure you nominate the right person or persons when you purchase your term insurance plan so that they can avail the benefits without any hassle during an emergency if need be.