Nomination’s not enough to claim insurance money

Jaswanti Gosar (name changed), A 67-year-old widow, had two life insurance policies. After the demise of her husband, whom she had nominated to receive the sums in case of her death, she wanted to change the nomination.

Gosar had two sons, and so she told her insurance agent to fetch two forms, whereby she could nominate each son to one policy.

“The funds would directly go to both of them equally and both wouldn’t fight for what is theirs when I am no longer around,” she thought to herself.

As it happened, a close friend of Gosar happened to visit her when the agent arrived with the change-of-nomination forms.

While chatting, Jaswanti told her friend about her nomination plans. Her friend, a lawyer, immediately sensed that Jaswanti was trying to divide the assets among the two sons and trying to escape the need of a will.

She said, “Jasu, it is not that the two of them would not fight over this amount after you have nominated them for respective policies.”

Jaswanti got worried. “Is this because the amount Harish (name changed) will get is slightly higher than what Suresh (name changed) will? They love each other and a few thousands here and there won’t matter much.”

The advocate friend replied, “You are getting me wrong dear. I am not hinting at the amount in the two policies not being equivalent. The problem lies somewhere else.”
The lawyer friend had seen innumerable cases during her 28-year career. In many such cases, the Life Insurance Act of 1938 was quoted whenever there was a dispute of the allocation of funds to family members by a deceased father or mother.

Recollecting one of the cases, she told Gosar, “The nominee doesn’t become the owner of the money once a life insurance company hands over the claim amount to him. The Life Insurance Act specifies that the holder of a policy…. nominate the person or persons to whom the money secured by the policy shall be paid in the event of his death.”

Thus, the money is paid to the nominee, but the nominee is not the only owner of the money, unless a will specifies the same. “When I was fighting a case, a legal expert with a life insurance company told me that the nominee is the one who is designated by the policyholder to receive the proceeds of an insurance policy upon the death,” she said.
To ensure that the person she has nominated to receive the funds from the insurance company stays the owner of the funds, Gosar would have to either write a will specifying the same, or use the option of assigning a life insurance policy.

“I can help you make a will, or you can ask any other lawyer to make one for you. Jasu, don’t forget to register your will so that it remains valid,” the lawyer told her.

“Another tool to give your sons the right to the money recieved under the life insurance policy is transferring or assigning the life insurance policy to their name,” the lawyer said. “According to the Insurance Act, a transfer or assignment of a policy made in accordance with Section 38 shall automatically cancel a nomination.”

After hearing her friend, Gosar decided to not only change the nomination, but also get prepare a will. “After all, I have to put my friend’s expertise to use,” she thought and asked her lawyer friend to help her make and register her will.

What the experts say
Insurance officials too say that a nominee is entitled to receive the money, but not to use it. “When benefits are paid to a nominee, it does not necessarily mean that the nominee is entitled to enjoy those benefits, but could, in fact, be responsible to pass the benefits onto another party, such as a disabled relative of the original policy owner,” says Mike Wood, chief actuary with IDBI Fortis Life.

While assigning a policy, the policyholder must know whether it is assignable — certain policies, such as pension plans, cannot be assigned. “There is no restriction to whom the policy may be assigned. The assignment can be either conditional or absolute,” says Anil Rego, chief executive officer of Right Horizons. But think twice before assigning a policy. “An assignment once made cannot be cancelled. It is only by another valid assignment that the earlier assignment gets cancelled,” cautions Rego.

Remember that post an assignment, the policy and conditions of the policy remain unchanged. “Assignment is only a legal framework. The risk is on the life of the insured, hence the assignee is not required to undergo medical tests,” says GLN Sarma, chief actuary at Bharti AXA Life. “The insured person remains unchanged after assignment
of the policy. Remember that the owner of the policy and the insured person can be
two different people. On assignment of the policy the ownership changes, not the insured person,” says Wood of IDBI Fortis Life.