As a financial instrument, an online life insurance policy is the most meaningful for your family members because it commits to secure them financially in case of your demise. Hence, when you buy a term plan, it is necessary to mention a beneficiary who will be entitled to the insurer in case of insured’s death during the policy period.
However, till now, nominating some didn’t always mean the beneficiary would be the ultimate nominee of the insurance money. Earlier, life insurance nominee was meant to get the death benefit from the insurer and distribute to the policyholder’s legal heirs. It created a lot of confusion because insured though that the beneficiary they mentioned would be the beneficiaries when they died.
As per the Insurance Laws (Amendment) Act 2015, policyholders can make immediate family members like parents, spouse and children as nominees and the insurance money will be received by the intended recipient. These new rules also introduce another nominee-friendly feature which customers must know in detail.
The idea of a beneficial nominee has launched by the amended Act. In this scenario, the nominee is the person who owns the policy benefits. If an immediate family member is declared as the nominee, then the death benefit will be offered to that person.
This makes the nomination procedure more transparent. This rule will be applicable to all life insurance policies which have a maturity date after March 2015. In fact, the nominee has the right to collect the insurance money when the policy matures after the policyholder’s death.
Before the introduction of this new rule, a nominee had this right to collect the money only upon insured’s death during the policy period. Some changes are related to the assignment of a policy. Assignment is the procedure by which insured transfer his or her rights to the entity or another person.
Today, once an assignment is done for a loan purpose, then actual nominee remains the same. Life insurance companies in India will pay the bank the outstanding dues as well as directly pay the balance to the nominee. The partial assignment is allowed under new rules.
When you buy a term plan only for the purpose of covering a loan, then the bank is the policyholder and you are the life assured. Generally, the sum assured or insurance coverage decreases as the outstanding loan amount decreases in this scenario. Now, policyholders have a right to reject assignment in case it results in the trading of policies. New rules are not only developed to protect the insured’s interest but also beneficiary’s.