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Insuring yourself with a life insurance plan in today’s fast and hectic World is a must. Life is all about uncertainty. What is there today is not there tomorrow.But buying life insurance need hardly be discussed. Its use and value is well known. You need life insurance and you know it.The point of discussion is the nominee of your life insurance plan. Do you know the rules of nomination in a life insurance plan? Have you chosen your nominee wisely?
You have availed a life insurance plan to provide for your loved ones, in the event of your untimely demise. You have to specify a nominee for this life insurance plan. Your nominee enjoys the insurance money of the life insurance plan in case of your untimely demise, within the tenure of the life insurance plan.
Till recently, the nominee of the life insurance plan was not necessarily entitled to enjoy the benefits of the plan. The nominee was just the care taker of this money. He would transfer the money to the heirs and it would be distributed, as stated in the Will. If a will was not made, then the life insurance proceeds were divided as per the succession laws of India. This rule of nomination had its share of problems, as you/policyholder believed that the death benefit would go to the nominee specified in the life insurance plan.
Now the Insurance laws have been amended as per the Insurance Laws (Amendment) Act, 2015.A new concept called the beneficial nominee has been introduced. If you nominate your parents, spouse or your children in the life insurance plan, then the Insurer will pay the death benefits of the life insurance policy to this nominee, called the beneficial nominee. If there are other legal heirs, they will have no right or claim over the insurance money. This reduces the chance of a family dispute. If a life insurance plan has a maturity after March 2015, then these new rules apply.
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. You cannot afford to be careless while choosing a beneficial nominee. Let us consider this case. You have availed a life insurance plan before your marriage. You have made your mother, the beneficial nominee in the plan. After marriage you have forgotten to change the nominee to your spouse, in the life insurance plan. As per the new rules, on your/policyholders untimely demise, the death benefit goes to your mother and not to your spouse. Even if you intended the death benefit to go to your spouse and children, it doesn’t reach them. This is because you have made your mother the beneficial nominee in the life insurance plan. There is another point you need to take note of. Before the new rule was passed, the nominee could collect the death benefits, only on the death of the policy holder. As per new rules the beneficial nominee can collect even the maturity benefit of a life insurance plan, if it is an Endowment life insurance plan. If you/policyholder survived till the maturity of the life insurance plan, but die before you could collect the maturity amount from the life insurance plan, the beneficial nominee gets the maturity amount of the life insurance plan. You know the value of a life insurance plan. This article also tells you why you need to be careful while selecting your beneficial nominee.