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    Nomination clause in life insurance policies: Know key rules for siblings and others

    Nomination clause in life insurance policies: Know key rules for siblings and others

    Nomination clause in life insurance policies: Know key rules for siblings and others
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    By CNBCTV18.com  IST (Updated)

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    Nomination is a matter of discretion exercised by the policyholder and can nominate anyone beyond any blood relations too.

    The policyholder appoints a nominee, who can be anyone to whom the financial benefits should be distributed in the event of the policyholder's death while the policy is in effect. Nomination is a matter of discretion exercised by the policyholder and can nominate anyone beyond any blood relations too.
    In most cases, the nominee will be the spouse, children, or parents. Till the notification of the Insurance Laws (Amendment) Act, 2015, the nominee was only holder of claim monies, holding the money in trust for legal heirs, however, the Amendment Act introduced the concept of “Beneficial Nominee”.
    Now, if any direct family member(s) i.e., spouse, children, or parents are named as a nominee, they will automatically become the beneficial holders of the claim benefits and will be known as a "Beneficial Nominee." This indicates that the death benefit will be paid to beneficial nominees and not to any other legal heirs, regardless of the circumstances. As a result, it is usually recommended to choose an immediate family member, as specified above, as the nominee, to avoid future conflicts between the nominees and legal heirs.
    Siblings can be added as nominees too.
    The policyholder's sister may be designated as a " Nominee" Too. However, if nominated, she will not be a “Beneficial Nominee, rather she will act as a Trustee, keeping the benefits of the insurance in trust for the legal heirs. Nomination of sister is justified when the policyholder is unmarried and parents are also not alive. If a nominee is also a sole legal heir, succession laws allows such nominee to utilise the death benefit.
    At the time the life insurance plan is issued, the nominated sister might be a juvenile or an adult. While selecting an adult is the most secure and least difficult option, certain procedural requirements are required to be fulfilled in case of minor nominees. An appointee is required to be appointed in the case of a minor. The appointee will hold the death benefit money in trust for the benefit of the minor nominee. This is because minors are not allowed to participate in legal transactions as per the laws of contract.
    Pros:
    In case if a policyholder does not have either parents or spouse nor children and has a sister who is dependent on him/her, then in such a scenario he/she can nominate the sister to be the nominee in the policy.
    Some insurance companies also provide grief support to assist the nominee of a deceased policyholder in getting their lives back on track after the loss of a loved one. These types of programs are aimed to assist families and a nominee in identifying and addressing personal difficulties that occur as a result of a traumatic experience, as well as coping with life's everyday challenges. They also provide emotional, face-to-face counselling along with providing financial planning because the death of the family's breadwinner, can jeopardize the family's long-term ambitions.
    Cons:
    Concerns persist even when the life insurer accepts a close relative as a nominee. A nominee may have to deal with disagreements with other family members when the claim is paid out. Thus, it is advisable to select multiple nominees to avoid disputes. However, keep it in mind that if you owe money to someone, your creditors can still collect it by attaching your property, including life insurance policies. Their rights take precedence over those of beneficial nominees.
    Appointing your sibling as a nominee is a pure act of protection, i.e., if your sibling is dependent on your income you can choose to nominate the sibling as a nominee. It is important to appoint a candidate for all of your assets, investments, and insurance policies. To ensure the financial stability of one's family, the policyholder should seek advice from a financial professional.
    The author, Vinod Benedict D'souza, is Head - Compliance Secretarial and Legal at Bharti AXA Life Insurance. The views expressed are personal
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