What is a Nominee? - Nominee Meaning, Types & Eligibility

A nominee is a person chosen by the policyholder who will receive a policy benefit in the event of the policyholder's death. The purpose of adding a nominee is to pass the benefit of the service or policy to the right candidate who is trusted by the policyholder.

Under the Insurance Act of 1938, the policyholder has the right to assign financial benefits to any individual of their choice.

The policyholder can exercise this right either when purchasing the policy or when making a nomination. This ensures that the policyholder's family will receive financial benefits in the event of any unfortunate incident.

Having a nominee in an insurance plan is crucial because it ensures that the money or benefits from the policy go directly to the person you have chosen without any hassle. As per Section 39 of the Insurance Act of 1938, this process helps avoid any confusion or legal delays when the policyholder passes away.

By naming a nominee, your family would not have to go through the time-consuming and complicated process of proving who the legal heirs are.

It also helps the insurance company quickly identify who should receive the policy amount, making the entire process smoother and faster.

This simple step gives your loved ones peace of mind, knowing they will get the financial support they need without unnecessary delays.

Beneficial Nominee

One of the main categories of nominees is a beneficial nominee, who is someone from the immediate family, such as a parent, child, or spouse. In this case, all the insurance benefits or compensation amount directly goes to the beneficial nominee.

Minor Nominee

Another type of nominee in an insurance plan is a minor nominee who is under the age of 18. The guardian or adult will look after the minor nominee's benefits but cannot use the funds for personal use.

These funds can be used for the minor’s needs, such as medical expenses, education and more. However, the regulations of insurance benefits for minors can vary based on the jurisdiction.

Non-family Nominee

Another type of nominee is a non-family nominee, an individual who is not related to you by blood or marriage.

This type of nominee is beneficial for those who do not have any immediate family members; they nominate someone whom they trust even if they are not related.

Contingent Nominee

The contingent nominee is another type of nominee which comes into effect when the primary nominee dies while the policyholder is still alive. In that case, the policyholder insurance benefits will transfer to the contingent nominee when they die.

For instance, a policyholder can name their spouse as the primary nominee and child as the contingent nominee.

Multiple Nominee

As the name implies, this is a type of nominee where the policyholder can choose more than one nominee. This is useful for those who want to distribute their insurance benefits among many kin.

Before making a nominee, policyholders need to make sure that the individual they are listing as a nominee in the insurance form is eligible to be a nominee. Here are the criteria for a nominee in insurance.

Legal Heirs: Legal heirs, who can be the policyholder's children or spouses, are one of the eligible categories for nominees in insurance plans.

Immediate Family Members: Another eligible category of insurance plan is immediate family members such as siblings, parents or family members.

Extended Family Members: Another eligible category includes extended family members, who can be your cousin, friend or relative. Policyholders need insurance companies' approval to appoint such nominees.

To become a nominee, there are certain rules which need to be followed. Some of the common insurance nominee rules are:

• Everyone needs to appoint nominees as per the Banking Company Rules 1985.

• If a nominee is not a legal heir, they can not use the funds.

• If a nominee is a minor, then they must appoint a guardian.

• As the account holder or depositor, you can change the nominee whenever you want.

Some common mistakes that policyholders make while appointing nominees in their insurance policies need to be avoided.

• Updating a nominee's details following a life transition, such as marriage or divorce, is crucial. Not updating them may lead to disagreements or hold up the payout process.

• Another crucial mistake policyholders make while nominating is not appointing a guardian for juveniles. Not doing so can prolong the claim or settlement process.

• Another common mistake individuals make while appointing nominees is ignoring tax implications. Paying attention to tax implications is crucial to avoid any undue financial strain for nominees.

• Policyholders need to select the nominee based on someone they can trust or who is eligible to manage responsibility, not someone purely based on the settlement amount.

Selecting a nominee for an insurance plan requires serious thought. Below are some of the factors to consider.

-Age of the Nominee: One of the most important factors while selecting a nominee is age. Age is crucial as it can affect the administrator's capacity to use insurance benefits efficiently.

-Connection to the Nominee: Another crucial factor to consider while selecting a nominee is the connection with policyholders such as spouse, children, etc. This will guarantee that the beneficiary will be someone you can rely on to manage funds.

-Nominee’s Health: Another crucial factor in choosing a nominee is their health. It is important to choose a nominee who is in good health.

-Dependency on Money: Another crucial factor in choosing a nominee is whether the candidate knows or understands the policyholder dependent's needs.

The importance of nomination in insurance is crucial for policyholders. It ensures the smooth and efficient transfer of benefits to the intended person in the event of the policyholder's death. It also provides clarity, prevents legal complications and facilitates quicker claim settlements, which is necessary during a difficult time.

Offering the flexibility to choose a nominee is equally important for businesses or organisations that provide corporate health insurance. This ensures a hassle-free claim settlement in the event of an employee's death, making sure their family members receive the necessary support without delays.

Moreover, a group medical insurance policy offers comprehensive medical care to employees and their families in times of unforeseen medical emergencies. It also helps in reducing the employer's financial implications. To safeguard organisation assets, there are various business insurance in India available.

TATA AIG provides customised group health insurance solutions tailored to the unique health needs of your workforce, ensuring they are well-supported both in terms of medical care and financial security.

Also Read: Benefits of Group Health Insurance Policy for Employees

Is it mandatory to have a nominee in insurance plans?

Yes, it is important to have a nominee in insurance plans. Having a nominee ensures a smooth and timely transfer of benefits to the intended recipient in the event of the policyholder's death, avoiding legal complications and delays.

Can I change to a nominee in Insurance plans?

Yes, you can change the nominee in your insurance plan at any time by submitting a request to the insurance provider.

Do I need to be 18 years of age to become a nominee?

No, you do not need to be 18 years of age to be a nominee in an insurance plan. However, if the nominee is a minor, the policyholder must appoint a guardian to manage the insurance benefits on behalf of the minor until they reach legal age.