Introduction
Whenever you prioritise your family’s financial security, a life insurance plan comes into the picture. It is a vital tool that ensures your family will not experience a financial crisis in your absence. One of the most important aspects of the term insurance plan is the nomination process. The policyholders will designate a beneficiary or beneficiaries who will receive the claim proceeds upon the policyholders’ death. However, there may be cases where the nominee passes away before the policyholder. Read on to understand what happens when a nominee dies in an insurance plan and alternatives to handle such a situation.
Understanding the Role of a Nominee
A nominee is the person who receives the claim proceeds in the event of the death of the policyholder. Losing a loved one can be very disheartening. It will be even more difficult if the family has no financial support. At this time the focus should be on a speedy claim settlement. If a nominee has been designated, the insurer can promptly settle the claim and hand over the proceeds to the intended recipient. To avoid legal hassles and delays in the claim process, a nominee is necessary in a term insurance.
Implications of a Nominee’s Death
The death of the nominee before the claim settlement can complicate the claim process. The following are the implications of a nominee’s death:
Legal Challenges
In case the policyholder has not updated the nominee after the death of the earlier nominee, family members and other potential beneficiaries may come forward to claim the benefit. It could lead to a legal battle that can delay the claim payout.
Delay in Claim Processing
When a nominee dies and the policyholder has not designated a secondary beneficiary or updated the nominee details, there can be a delay in the claim process. The insurer may require additional documentation or legal procedures to identify the right beneficiary. This ordeal can be time-consuming and difficult for the policyholder’s family.
Alternatives and Precautions To Be Taken
Selecting an affordable term insurance plan that aligns with your financial goals is crucial. Use a term insurance calculator to evaluate your needs and premiums. Equally important is designating a deserving nominee to ensure your family’s financial security in case of unforeseen events. Your efforts to protect your family financially will not be complete without thoughtful nominee planning. To ensure your family receives timely financial support in your absence the following alternatives and precautions are recommended:
- Review and update the nominee details periodically to ensure that the insurance benefits reach the intended recipient. It also helps in avoiding delays and complications in the claim process. Life events like marriage, parenthood, divorce, etc., prompt necessary changes in the nominee’s details.
- To be on the safer side, it is always better to appoint a contingent or secondary beneficiary. This will be of great help, especially in cases where the nominee passes away before the policy term and the policyholder has not updated the nominee’s details before the untoward happens. It will simplify the claim process and the intended person will receive the insurance benefits.
- A provision to designate multiple beneficiaries is also provided. You will have to specify the percentage of the claim benefit each one of them can receive at the time of policy purchase.
Procedure To Change The Nominee
The need for change in the nominee arises if the original nominee does not survive the policy term or if you feel that the nominee lacks the prudence to handle lump sum finance. The procedure to change the nominee during the policy term is given below:
- You can either approach your insurer and get the relevant form for change in nomination or download the form from your insurer’s official website.
- Fill out the form accurately. Provide all the required details of the new nominee and submit the form to your insurer.
- You might have to convince the insurer of the authenticity of your relationship with the new nominee.
- Once the details of the nominee are updated, get an acknowledgement from the insurer. This will avoid complications or disputes during the claim process if the situation arises.
Changing the nominee is not a tedious task. It is a simple and hassle-free process. If you have term insurance plans and are yet to appoint a nominee, do it at the earliest. This will spare your family from legal issues and will provide them with the financial security that you desire.
Conclusion
Insurance is one of the fundamentals of financial planning. It protects your family during life’s uncertainties. Appointing a nominee in an insurance plan is the basic step in ensuring that the intended beneficiaries receive the insurance proceeds.
The death of the nominee can disrupt one’s life. It may give rise to legal battles and delays in the claim settlement process. To wade through these challenges, the policyholders should update their nominee details or consider including a secondary beneficiary. By staying proactive and informed, policyholders can ensure that their insurance benefits fulfil their intended purpose i.e., providing financial security to their loved ones in case of an unexpected event.