Nomination in a Life Insurance policy

insurance-nomination

Nomination is a right conferred by the section 39 of the Insurance Act 1938, on the “holder of a policy of life assurance on his own life” to appoint a person/s to receive the policy moneys in the event of the policy becoming a claim by the assured’s death. The term “holder of a policy” ordinarily means a proposer or life assured or an absolute Assignee who has right, title & interest in the policy. But if the holder of the policy is not life assured himself, he cannot effect a valid nomination under the policy. In other words, if holder of the policy is life assured, then only he can effect valid nomination under the policy. In other cases, where proposer and life assured are different persons i.e. policies taken during minority of life assured OR policies taken by father on major child, nomination is not allowed. In case policy is absolutely assigned in favour of assignee, though he is a holder of the policy, Assignee cannot effect valid nomination under the policy. This is because, he is not life assured under the policy.
Policies which are taken during minority of life assured and after policy vests in life assured automatically by completing the age of majority, provided the premiums up to date of vesting have been paid fully, then life assured can effect valid nomination under the policy. In case, where policies which are effected on another life or during majority of life assured, unless policy is assigned absolutely in favour of life assured by proposer, nomination by life assured is not possible.
In short, Nominee is statutorily recognized as a payee who can give valid discharge to the insurance company for payment of policy money in case of death of life assured before expiry of the term of contract. The nomination enables the nominee to receive the policy proceeds without necessity of producing any legal evidence of title to the estate of deceased life assured. but such nominee is liable to account for the moneys to all legal heirs of the deceased life assured.

How to effect nomination

The proposer/ life assured i.e. holder of the policy may appoint a nominee/ies while submitting the proposal on his own life by giving suitable reply to the appropriate question in the proposal form. Even if the proposal has already been submitted, the life assured can write letter stating that he desires to appoint a nominee under sec 39 of the insurance Act 1938.
After issue of policy, nomination can be made only by an endorsement on the back of policy itself and such a nomination is required to be notified to the insurance company and registered in its records. Nomination on separate sheet of paper would be invalid. Since Assignment of policy except in favour of insurance comapany, cancels the nomination, after reassignment, fresh nomination will be required.

Minor Nominee

When a nominee is a minor, an appointee may be appointed to receive the policy moneys in the of death of the life assured during the minority of the nominee. The appointee should be major person. The appointment of the appointee is valid under the Indian Insurance Amendment act 1950. The person so appointed as appointee should not be necessarily as Guardian of the minor nominee.
The appointee must affix his signature to the endorsement in token of his having consented to act as an appointee and a responsible person must witness his signature. The appointer viz. the life assured has a right to revoke the appointment of appointee. Where the nominee is a minor & no appointment of an appointee has made, in the event of assured’s death during the minority of the nominee, claim amount should not be paid to guardian of minor ‘s nominee, but it should be paid to the legal heirs of the life assured. The appointment of a person as appointee doesn’t make him a guardian of the minor under related law of guardians, but merely confers on him the right to receive the policy money. His authority is limited to that purpose only.

Several Nominees/Nominee

SEC 39(6) of the Insurance Act provides that where there are more nominees than one, the policy money will be payable to them jointly or to the survivors or survivor of them. There is a statutory provision to the effect that on the death of one of the nominees, the money shall to be paid survivor nominee. The legal heirs of deceased nominee cannot claim share in policy money. Therefore, a nomination providing for payment to nominees in distinct shares cannot be regarded as valid. As & when, office receive death intimation under the policy where several nominees are there, care should be taken that discharge form is signed jointly by all nominees. If any signature is missing, then death certificate of said deceased nominee should be called for verification. The claim cheque can be issued in name of one of the nominees whose name has been given in note of authority.
When life assured writes nominee as “wife & children” and not naming specifically names of existing wife & children, then such nomination will not be valid, as it defeats the purpose of nomination. Therefore, life assured should be advised to mention the names of existing wife & children without specifying the share of nominees. Successive or Alternative Nominee. Nomination is a right conferred by Section 39 of the Insurance Act 1938, on the “holder of a policy of life assurance on his own life” to appoint a person/s to receive the policy moneys in the event of the policy becoming a claim by the assured’s death. Hence, nomination can be effected by the life assured only and not by any other title holder or beneficiary of the policy.

Nominee is statutorily recognized as a payee who can give valid discharge to the Insurance company for payment of policy money without the hassles of establishing the title to receive the same, in case of death of life assured before expiry of the term of contract. Nomination can be effected at proposal stage or after issue of policy. At present, there are three ways to effect nomination namely single nomination, joint/ multiple nomination and successive or alternative nomination.

Effect of Nomination

Nomination merely gives the nominee the right to receive the policy moneys in the event of death of the life assured. The nomination does not pass the right of the property in the policy to the nominee. The nominee has no right to deal with the policy. The policy continues to be part of the estate of life assured and he can deal with the policy in any manner without the consent of the nominee. Life assured can revoke/cancel the existing nomination or effect a change of nomination without the consent of the nominee. Nominee is answerable to all the natural heirs left by the deceased, in case of rival claim is lodged by other natural heirs. Nominee cannot commute the annuity installment under multipurpose or other allied plan.
In the event of the death of the nominee, the nomination becomes ineffective and the nominee’s heirs do not have the right to the policy monies. In such case, life assured has the right to make a fresh nomination. In case, the nominee dies after the death of life assured but before receiving the policy money, the nomination would be ineffective and the policy monies will become payable to the legal heirs of the life assured. This is because as per sub-section 1,2,4,5 & 6 of sect 39 of insurance act, the proceeds of the policy do not vest in the nominee though they are payable to the nominee in the event of the death of the holder of policy.
The nomination will have no effect on & after date of maturity. Thus, if life assured expires after date of maturity & maturity claim is not settled, then claim should be settled in favour of legal heirs of deceased life assured and not in favour of nominee.

Change or cancellation of Nomination

A nomination may be cancelled or changed by an endorsement or a further endorsement as the case may be or by a will also. However, notice of such cancellation or change should be delivered to insurance company. Where it is proposed to cancel a nomination by will, the provisions of the will should show clearly either by express words or by implication, the intention of the life assured to cancel the nomination e.g. by a gift of the policy moneys to another party.
If cancellation or change of nomination is made in will, notice of such nomination or change would be required from the executors of the will after the death of the life assured and therefore such cancellation or change of nomination can take place only from that date. An assignment whether absolute or conditional, cancels the nomination. Text of assignment duly signed by life assured but not registered with insurance company also cancels the nomination.

Notice of Nomination
Nomination if not incorporated in the text of the policy, must be made only by a special endorsement on the policy. But said nomination will not be effectual unless & until it has been communicated to & registered by insurance company. When there is no nomination at proposal stage e.g. during minority or proposal taken on another life and such a nomination is made for the first time, notice of nomination is not required. However, notice of nomination is required in respect of any endorsement of nomination subsequent to the first or in respect of cancellation or change of nomination.
Nomination after reassignment of policy will also require notice of nomination, but form of first nomination will be used. When notice in writing is necessary in respect of nomination, only the life assured or the person whom power of attorney is given should give it. Notice given by anybody else is not sufficient. Even a notice from nominee is also not acceptable. As regards cancellation or change of a nomination made by a will, such cancellation or change can take effect on death of assured & as such notice by the executors of the will after death of life assured will be required. Any notice of cancellation or change of nomination by will give by assured himself may also be acceptable. However, a notice by the executor of the will, will also be required.
It is important that for a will to cancel a nomination, there must either be an express clause therein cancelling the nomination specifically or else there must be a bequest of the same policy to a party other than the nominee.

Nomination in favour of stranger

In accordance with Sec 39 of the Insurance Act,1938, the holder of a policy of life insurance on his own life, may, when effecting the policy or at any time before the policy matures for payment, nominate a person or persons to whom the money secured by the policy shall be paid in the event of his death. Where under a proposal, the proposer contemplates nominating, as Nominee a person who is apparently a stranger, enquiry should be made so as to ascertain the purpose of insurance. If the reply is satisfactory from view point of insurable interest and moral hazard, the consideration of proposal may be proceeded with.
In view of certain malpractices observed in the nomination process, it has been decided to issue the following guidelines regarding nomination:-

  1. If the person to be nominated is spouse, child/children or a parent, the case may becompleted as usual.
  2. If the person to be nominated is brother, sister, grandchild, grand parent, step child and adopted child, then case may be completed provided spouse, child/children or parent is not surviving. If spouse, child or a parent is surviving, then reasons for not appointing them, as a nominee and appointing some other relative should be asked. If reply is satisfactory, then case may be completed.
  3. If the person to be nominated is a distant relative or not related to the life to be assured, such cases should not be considered and nomination in favour of a close relative should be insisted upon. If the life to be assured insists for nomination in favour of a person not related (including a distant relative) to him/her, then a letter should be sent at his/her address to have his/her consent for the desired nomination. Further a special Moral hazard report should be obtained at least from a officer regarding the genuineness of the nomination and to ensure that no moral hazard is involved. 

Date of registration of Nomination

In case of first nomination under the policy, where notice for nomination is not required, the date of receipt of the policy by the servicing office of insurance company will be effective date of registration of nomination. In other cases like change of nomination, cancellation of nomination, the date of receipt of notice will be effective date of registration.

Nomination in Policies under MWP or HUF

Policies which are issued under section 6 of Married women’s property act, are out of perview of sec 39 of insurance act. Hence nomination under MWP act policies is not possible. Policies having nomination, subsequently converted in to married women’s property act, cancels the nomination.
If policy is financed from HUF, it would belong to the HUF entirely & policy moneys would be payable only to the karta of HUF. Hence nomination cannot be made under a policy financed from HUF fund.