What is the concept of Beneficial Nominee?
A beneficial nominee is someone who will get the sum assured on the death of the policy holder. Insurance company will now pay ONLY to the beneficial nominee, independent of the claims of other legal heirs. Legal heirs will no longer have any claim on the amount of the death benefit.
The rules for nomination in life insurance have changed for insurance policies maturing after March 2015. This change was brought about through the Insurance Laws (Amendment) Act of 2015 and it rewrites the rules for Nomination in Life Insurance under Section 39 of the Insurance Act, 1938, among others.
Who is a Nominee in my Life insurance policy?
The life insurance sector is one of the rapidly growing finance related segments in India. The main aim of Life insurance to a person is to provide financial security to his/her dependent families post his/her death. In other words, it is an agreement between the Insurer and the Individual. Life insurance policies come into picture when the insured has passed away and the beneficiaries (dependents) have filed a claim. This involves submitting a certified copy of the death certificate to the life insurance company holding the policy.
The person who is likely to buy a life insurance policy chooses or nominates his/her nominee at the time of buying the life insurance policy. Nominee is usually the spouse, children or parents. The insured person can nominate one or more person as his/her nominee. A nominee for a life insurance policy was defined as a person who will receive the sum assured or death benefit, on the death of the policyholder.
The nominee is different from Legal heirs (like wife, children, dependents etc), has to distribute the money between the legal heirs as specified in the will of the policy holder. But due to many people not leaving behind a will, many court cases started coming between nominee and legal heirs. Hence a new concept of beneficial nominee is introduced.
What is the new, legal definition of a Beneficial Nominee?
Nomination – As per Section 39 of the Insurance Act 1938, amended by the Insurance Laws (Amendment) Act, 2015:
(1)The holder of a policy of life insurance nominates the person or persons to whom the money secured by the policy shall be paid in the event of his death:
Provided that, where any nominee is a minor, it shall be lawful for the policy holder to appoint any person in the manner laid down by the insurer, to receive the money secured by policy in the event of his death during the minority of the nominee.
(2) Any such nomination in order to be effectual shall, unless it is incorporated in the text of the policy itself, be made by an endorsement on the policy communicated to the insurer and registered by him in the records relating to the policy and any such nomination may at any time before the policy matures for payment be cancelled or changed by an endorsement or a further endorsement or a will, as the case may be, but unless notice in writing of any such cancellation or change has been delivered to the insurer, the insurer shall not be liable for any payment under the policy made bona fide by him to a nominee mentioned in the text of the policy or registered in records of the insurer.
(3) The insurer shall furnish to the policy holder a written acknowledgement of having registered a nomination or a cancellation or change thereof, and may charge such fee as may be specified by regulations for registering such cancellation or change.
(4) A transfer or assignment of a policy made in accordance with section 38 shall automatically cancel a nomination: Provided that the assignment of a policy to the insurer who bears the risk on the policy at the time of the assignment, in consideration of a loan granted by that insurer on the security of the policy within its surrender value, or its reassignment on repayment of the loan shall not cancel a nomination, but shall affect the rights of the nominee only to the extent of the insurer’s interest in the policy: Provided further that the transfer or assignment of a policy, whether wholly or in part, in consideration of a loan advanced by the transferee or assignee to the policyholder, shall not cancel the nomination but shall affect the rights of the nominee only to the extent of the interest of the transferee or assignee, as the case may be, in the policy: Provided also that the nomination, which has been automatically cancelled consequent upon the transfer or assignment, the same nomination shall stand automatically revived when the policy is reassigned by the assignee or retransferred by the transferee in favor of the policyholder on repayment of loan other than on a security of policy to the insurer.
(5) Where the policy matures for payment during the lifetime of the person whose life is insured or where the nominee or, if there are more nominees than one, all the nominees die before the policy matures for payment, the amount secured by the policy shall be payable to the policyholder or his heirs or legal representatives or the holder of a succession certificate, as the case may be.
(6) Where the nominee or if there are more nominees than one, a nominee or nominees survive the person whose life is insured, the amount secured by the policy shall be payable to such survivor or survivors.
(7) Subject to the other provisions of this section, where the holder of a policy of insurance on his own life nominates his parents, or his spouse, or his children, or his spouse and children, or any of them, the nominee or nominees shall be beneficially entitled to the amount payable by the insurer to him or them under sub-section (6) unless it is proved that the holder of the policy, having regard to the nature of his title to the policy, could not have conferred any such beneficial title on the nominee.
(8) Subject as aforesaid, where the nominee, or if there are more nominees than one, a nominee or nominees, to whom sub-section (7) applies, die after the person whose life is insured but before the amount secured by the policy is paid, the amount secured by the policy, or so much of the amount secured by the policy as represents the share of the nominee or nominees so dying (as the case may be), shall be payable to the heirs or legal representatives of the nominee or nominees or the holder of a succession certificate, as the case may be, and they shall be beneficially entitled to such amount.
(9) Nothing in sub-sections (7) and (8) shall operate to destroy or impede the right of any creditor to be paid out of the proceeds of any policy of life insurance.
(10) The provisions of sub-sections (7) and (8) shall apply to all policies of life insurance maturing for payment after the commencement of the Insurance Laws (Amendment) Act, 2015.
(11) Where a policyholder dies after the maturity of the policy but the proceeds and benefit of his policy has not been made to him because of his death, in such a case, his nominee shall be entitled to the proceeds and benefit of his policy.
(12) The provisions of this section shall not apply to any policy of life insurance to which section 6 of the Married Women’s Property Act, 1874, applies or has at any time applied; Provided that where a nomination made whether before or after the commencement of the Insurance Laws (Amendment) Act, 2015, in favor of the wife of the person who has insured his life or of his wife and children or any of them is expressed, whether or not on the face of the policy, as being made under this section, the said section 6 shall be deemed not to apply or not to have applied to the policy.
Summary of differences between Beneficial Nominee Vs Old Nominee:
Hence now NOMINEE is equal to BENEFICIAL NOMINEE to whom the death benefits will be payable irrespective of other legal heirs claim.
|Old Policy with a Nominee||New Policy with a Beneficial Nominee|
|Earlier Nominee used to act as a receiver||Beneficial Nominee is the receiver and beneficiary|
|Nominee Does not have ownership of the claimed amount he or she will receive||Beneficial Nominee has the ownership on the claimed amount.|
|The nominee is different from Legal heirs (like wife, children, dependents etc),||Beneficial nominee only receives the claimed amount and legal heirs do not have any right.|
|Has to distribute the money between the legal heirs as specified in the will of the policy holder||Has the complete ownership on the claimed amount and no distribution occurs b/w legal heirs.|