Due to much focus on higher foreign direct investment in the insurance industry, an important aspect of the Insurance Amendment Act 2015 was unnoticed. This clause makes it easier for dependents of the insured person to claim insurance proceeds after the policyholder’s demise.
This clause skips the probability of disagreements among family members over death benefits. Earlier, a nominee in life insurance was not considered as beneficiaries. They are like receivers of the insurance proceeds on behalf of the legal heirs of the insured.
As per the new act, a ‘beneficial nominee’ segment has created. It includes policyholder’s old relatives only. Today, if the insured mentions his parents, spouse or children as his nominees in a term plan, then they become beneficial owners of the claim proceeds.
Till now, insurance companies in India could give the claim benefits to the nominee and then other legal heirs could claim the benefits from the nominee. Now, if legal heirs claim the benefits, the insurer pays the benefits to the beneficial nominees only.
In fact, this new clause also gives freedom to policyholders to mention various nominees and their contribution in the proceeds. The collector nominee can work as a trustee accountable to the legal heirs for the advantages given under the online life insurance policy.
In case a nominee is also mentioned as a legal heir, then he or she will be eligible to the share of the death benefit as per the succession laws. Here, insured can appoint anyone as his nominee, including a trust.
Generally, it has been observed that the main reason behind disputes is other legal heirs demanding rights over policy proceeds. It is advisable to appoint a beneficial nominee to decrease the chances for disputes.