The most significant feature of a term insurance plan, for most consumers, is the death benefit. When a person insured by a policy passes away during the policy duration, their term insurance nominee can claim a death benefit from the policy.
Level term insurance plans seldom offer any other benefits, with the exception of riders. Thus, the death benefit can be deemed as the primary purpose of this policy. However, for the death benefit to be processed smoothly, the policyholder has to ensure that the nomination happens correctly.
What is a Nominee?
When referring to term insurance plans, a nominee is a person who can make a claim and receive the death benefit, if the occasion arises. The nomination is made by the policyholder, usually when buying the policy.
This is a person you except to receive the benefits of your term insurance. Thus, it ought to be a person you can trust, your other loved ones can depend on, and whom you expect to benefit from your term plan.
While it is ideal to make the nomination when buying the policy, some insurers will allow you to do that at a later time. Furthermore, you can change the nominee any time before policy maturity. The process usually requires you to fill out a nomination change form and submit it to your insurer.
How to Choose a Nominee?
When you buy a term insurance policy, you are probably thinking of a secured future for your loved ones in case you are not there to provide them with the same. Thus, the meaning of term insurance may be lost if the nomination process is not executed thoroughly by the policyholder.
A term insurance nominee ought to be an adult, preferably an immediate family member. Ensure that this person will shoulder the responsibility.
As per prevailing regulations, most insurance providers will not accept a non-family member being nominated. Thus, choose to name immediate family members, unless absolutely necessary to do otherwise.
If you are naming a minor person as your term insurance nominee, you will be required to appoint a custodian for them. The custodian will be responsible for the death benefit until the minor nominee turns 18 years of age.
Naming Multiple Nominees
You are allowed to choose more than one nominee. When doing so, you can also decide the percentage of the benefit that each one will receive. If you don’t specify the percentage, the insurer may choose to divide the sum assured equally amongst all nominees. Using a term plan premium calculator, you can figure out your sum assured and decide how to divide it amongst multiple nominees.
In case the person insured passed away without naming a nominee, the policy benefits are passed on to the legal heir. This would be the spouse, parents, or children.
However, this is applicable only if they do not leave a Will behind. If there is a Will, the term insurance benefits will be distributed as per the wishes expressed in the document.
Mistakes to Avoid
- During the nomination process, ensure that all the necessary details of the nominee are provided. If their details change during the policy duration, update your policy with the same.
- On the other hand, also keep your nominee well-informed about the policy and the facts of their nomination. A nominee is required to initiate the death claim process. An uninformed nominee may not be able to do so.
- When naming a minor nominee, a policyholder may avoid or procrastinate naming a custodian. Know that if you want to ensure a smooth process for your minor nominee, naming a custodian is necessary. If you fail to do so, they may fail to receive the benefits.
- If your nominee passes away during the policy duration, name another nominee as early as possible.
In the case of term insurance plans, especially ones that offer no maturity benefits, nomination holds significant weight. It is a way for you to ensure that your policy benefits reach your loved ones the way you have intended them to.