What Is A Life Insurance Beneficiary?

Life Insurance Beneficiary

830 Views

A life insurance policy is an important asset for leading a worry-free life. When the unfortunate happens, this asset provides a hefty amount, known as the life cover or the sum assured, to the person/people the policyholder has chosen. The individual to whom the sum assured is legally given is called the beneficiary of the policy. The policyholder has the right to choose the beneficiary when they are purchasing the policy. This is an important decision that must be taken after thoughtful consideration and due research. Keeping that in mind, we take a detailed look at the concept of a beneficiary in life insurance.  

Why choose the right beneficiary 

Understanding why nomination is important in life insurance, and how to do it is vital. The primary reason for choosing a beneficiary is that the life cover you have amassed should fall into the right hands in your absence. If you are buying a life insurance policy and paying regular premiums for it, then you would have an intention of securing a particular sum assured amount for someone. Choosing the right beneficiary is a step in assuring that.

Another important step to follow before buying a life insurance policy is to use a life insurance calculator. This valuable tool gives you an estimate of how much amount you will be paying to obtain the sum assured you are looking for.

Different kinds of beneficiaries 

The beneficiary of a life insurance policy can be a single individual or multiple persons. Though family members are the most common beneficiaries opted for by policyholders, it is not uncommon to see a charitable organization, an estate, or a trust, be named as the beneficiary. When multiple people have been named as beneficiaries in a policy, the policyholder has to assign a certain percentage of the life cover to each of them. This allows for a smoother claim settlement. If you are unsure as to the amount you should keep as the life cover, a life insurance calculator and advice from an expert may be able to help you.

In cases where the beneficiary is under 18 years of age, it is required to assign a custodian. Once the beneficiary turns 18 years old, they become eligible to receive the life insurance benefit payout.

While there are no rules as to whom you can select as a life insurance beneficiary, there are certain guidelines and norms that you would have to comply with. Most insurers prefer you choose a family member as your beneficiary, as doing otherwise could possibly lead to legal disputes between the outsider beneficiary and your family members. If you are choosing a beneficiary that is not your family member, then one way to eliminate any dispute for the life cover is to name the beneficiary as an heir in your will.  

The process of selecting a beneficiary 

When you are buying a life insurance policy, you will be given options to add details about the people you want as your beneficiaries. Once the forms with the details are accepted by the insurance company, the person is legally considered as your nominee. If you want to change the beneficiary anytime during the policy duration, you can do so by filling out the appropriate form. You can also add a beneficiary to the present ones. Ensure to inform the beneficiaries about these changes to evade any confusion.   

What if there is no beneficiary? 

In the rare situation that no beneficiary has been assigned or they have passed away with no updates to such an event in the policy, there are certain guidelines that are followed by the insurer. In the absence of a will, the life cover is provided to the immediate heirs, namely the parents, spouse, and children. If there is a will, the payout is allocated as per the Indian Succession Act, 1925. In this case, there needs to be a succession certificate issued by the applicable court. The insurer may also ask the beneficiaries to provide an indemnity or waiver of legal proof.

Now that you know why nomination is important in life insurance and how you can go about it, do remember to review the beneficiary’s rights from time to time. Changes in laws may lead to modifications in the entitlements allotted to a life insurance beneficiary as well. It is also significant that you provide correct information about the beneficiary to ensure there are no glitches in the claim settlement process.

Leave a Reply

Your email address will not be published. Required fields are marked *