What is Nomination in a Life Insurance Policy?
Nomination is only an authorization to some one to receive the policy money if and when the policyholder dies. A policyholder can nominate any person (usually a close relative) to receive the money from the insurance company if he dies before the policy matures. Nomination is governed by Sec. 39 of the Insurance Act 1938.
Who can make a nomination?
A policyholder who has a policy in his own life can make a nomination. A father who has taken a policy on his child’s life cannot make nomination on that policy.
What happens to the ownership of the policy upon nomination?
When a policyholder makes a nomination, he continues to be the owner of the policy. The nominee can only collect the policy money from the insurer and that too only if the policyholder dies before the policy matures. Therefore, if the policyholder lives upto the date of maturity, then nomination gets automatically cancelled.
It should be made clear that a nominee can only collect the policy money when the policyholder dies. But all legal heirs have a right to the policy money. So strictly speaking, a nominee who collects the policy money from the insurer has to share it with all the legal heirs.
Take an example, if a Christian male person dies (this point namely, “Christian male” is mentioned only because legal heirs are different for different religious communities) and if one of his sons is the nominee, that son can no doubt collect the policy money from the insurer. But he will have to share it with his brothers and sisters and his mother who also are the legal heirs.
Can nomination be changed or cancelled?
The policyholder can always cancel a nomination. He can also change the nomination. He can change it any number of times.
What happens if the nominee dies?
If a nominee dies, the nomination gets automatically cancelled. The policyholder can make a Iresh nomination. That is why it should be noted that a nomination does not confer a legal right except to collect the policy money in the event of the death of the policyholder before the date of maturity.
What is the procedure to make nomination?
Nomination can be made either at the time of taking the policy or later. If the policyholder wishes to make a nomination at the time of taking the policy, he can indicate his desire in the proposal form. When the policy is issued, it will contain the fact of the nomination.
Nomination can also be done at any time after taking the policy. In that case the policyholder has to write out the wording of nomination on the policy bond, sign it and get it witnessed.
Is it necessary to inform the insurer about nomination.
In the case of nomination also, it is necessary to inform the insurer when a policyholder makes a nomination after a policy is issued or if he changes the nomination or cancels it. Such information is called notice. On receiving the notice, the insurer registers the nomination in its records so that if and when the policyholder dies, it will pay the policy money to the nominee.
Can a policy be nominated to a minor person?
Nomination can be made in favor of a minor person. But it is advisable in such a case to appoint a major person as the appointee. If the policyholder dies when the nominee is still a minor then the appointee will receive the policy amount on behalf of the minor nominee.
What are the circumstances in which a nomination gets cancelled?
A nomination gets cancelled under the following circumstances:
- If the policyholder cancels it
- If the policyholder changes it
- If the nominee dies
- If the policy is assigned
- If the policyholder makes a will and mentions in the will that his policy should go to someone else.
Are there any special aspects about nomination?
Nomination can be made in favor of more then one person. All the nominees collect the policy money jointly.
Example: if four persons are nominated, all the four will get the policy money jointly. If one of the four nominees dies, then the remaining three nominees will get the policy money jointly.
As stated above, when more than one person are nominated, the nominees take the policy money jointly. No share can be prescribed as between the several nominees. If a nomination is made prescribing shares between the nominees, such nomination will be become invalid.
Nomination can be made “Successive”, that is, a person can say that he nominates A and if A dies B and if B dies then C and soon.
Who pays premium when a policy is nominated?
When a policy is nominated, the policyholder himself continues to pay the premium.