Spend, Save and Invest Smartly
There is a famous saying
"Life Insurance costs money but lack of life insurance costs even more. Lack of it could cost your family a home and your children a fair start in life."
There are no words to describe the need of life insurance and neglecting to insure yourself can cost you heavily. “You speak of life insurance as a luxury. Do you consider food, clothing, and shelter as luxuries? They are what life insurance provides your family in your absence”.
So why do you avail a life insurance policy? It has to be for the claim settlement. If the unthinkable happens the insurance money must reach your family. Learn the new insurance rules to benefit nominees.
You appoint a nominee for your life insurance policy when you fill up your life insurance policy form.
But do you really know what a nominee is?
The nominee you state in your life insurance policy (could be your spouse, child, lawyer or even a parent) are just a trustee to the insurance money in your life insurance plan. The job of the nominee is simple. He just makes sure that on your/policyholders untimely demise the insurance money reaches your heirs or the intended beneficiary. If you don’t make a will (die intestate) the Nation’s Laws based on your religion decide who will get the life insurance money.
In the new rules on life insurance if you (policyholder) nominate your spouse, parents or children then on the your /policyholders death the Insurer will pay them the money.
Your spouse, parents or children are called beneficial nominees. If you make your spouse as the nominee (beneficial nominee) then on your/policyholder’s death the death benefit (Amount paid on the policyholder’s death) will be paid only to your spouse.
If there are other legal heirs, they will have no right or claim over the insurance money. Nomination for a life insurance policy was a meaningless exercise if on your/policyholders death the Nations laws Governed the distribution of the life insurance money among your legal heirs in the absence of a will.
The new rule assumes that you/policyholder know what you are doing when you nominate your spouse, children or parents (beneficial nominee’s) as a nominee to the money from your life insurance policy. This is as good as a will and the beneficial nominee (Parents, Spouse or Children) will get the death benefits without having to go through the hassle of a legal process.
A term life insurance plan pays your nominees a sum assured (death benefit) on your/policyholder’s death. There are no benefits if you survive the term of the policy. If you avail an Endowment life insurance plan or a Ulip and you survive till the maturity of the policy, you get a maturity benefit. For an endowment life insurance plan you get the sum assured + Bonus. For the Ulip you get the sum assured + fund value or just the fund value depending on the type of Ulip.
As per the new rules your beneficial nominee can collect the maturity benefits on the life insurance plan in the event of your/policyholder’s death on maturity of the life insurance policy. Before the new rules your nominee could collect the life insurance money only on the death of you/policyholder during the term of the life insurance plan. If you/policyholder survive till the maturity of the life insurance plan but die before the money reaches you (Is collected) then the nominee could not collect this amount.
As per the new rules the nominee can collect the maturity benefits if you/policyholder die before collecting the money and the life insurance plan has matured. If the nominee is the beneficial nominee, then the proceeds of the life insurance policy go to him. No other legal heirs can challenge the right of the beneficial nominee to this money. If a life insurance plan has a maturity after March 2015, then these new rules apply.
When you avail a loan from a bank, you can pledge your life insurance plan as a collateral/guarantee. This is called assignment of a life insurance plan.
Assigning of your life insurance plan to a bank (as collateral for the loan) means the bank is the owner of the life insurance plan. You/policyholder are the life assured under the life insurance plan. If you/policyholder die, the bank then receives the insurance money from the life Insurer.
If you/policyholder assign the life insurance policy to the bank, the nominee of your life insurance plan (say your family members) have no right over the death/maturity benefits of the life insurance plan.
The rights of the nominees of your life insurance plan stand cancelled after assignment of the life insurance plan to the bank. The bank after settling its dues (collecting the money you owe them) then pays the balance money to your nominees as per its discretion.
As per new rules when you assign (pledge your life insurance plan as collateral) the original nominee (say your family members) remain the same.
The Insurer will pay the bank the outstanding dues (The loan amount you have to repay).The remaining amount is directly paid to the nominee.
You can also assign a life insurance plan partially. You have availed a life insurance plan with a sum assured of INR 30 Lakhs. You have a bank loan of INR 20 Lakhs to repay. In case of your/policyholders death the Insurer will settle your loan dues (INR 20 Lakhs) directly with the bank. The balance amount is then paid to your nominee.
You need to remember that after the new rules on life insurance are passed, your nominee/family get the benefits of your life insurance plan without any legal hassles.