The term “beneficiary” is defined as “a person who derives advantage from something, especially a trust, will, or life insurance policy”. In India rarely is the word beneficiary used.
In the case of a general insurance or a
health insurance policy the person who can claim is usually the policy owner
himself, because he is alive and capable of claiming.
In a life insurance policy, the policy
holder is usually dead before claim occurs. (LIC of India uses the word “claim”
for maturity proceeds and interim survival proceeds: in standard terminology
these are not “claims” but contractual payouts). Here is a list of payees who
can potentially receive amounts from claims on a life insurance policy.
- Nominee
- Appointee
- Assignee
- Trustee
- Joint Life Policy Holder
- Policy Owner
- Court Appointed Receiver
- Government Authorities
Nominee: This entity is almost unique to India and has an entire clause in
the Insurance Act (S.39) governing his status. The name of the nominee is
usually indicated at the start of the policy and normally is the close relative
of the policyholder. Thus a spouse, children, brothers, sisters, and parents
are the usual nominees. By convention, Insurance companies frown upon strangers
being made nominees. It is almost impossible to nominate a friend. A
policyholder can change his nominee any number of times during the currency of
the policy at no cost. Only the name of the new nominee and a simple notice is
required. Nominees have no role to play till the policy results in a death
claim. Nominees do not have the right to retain the money, and their role is
limited to giving the insurance company a discharge for the claim payment. Thus
the cheque is made out in the name of the nominee although as per law, he may
not have any right to use the money! But, since a vast majority of the nominees
are also rightful heirs, complications are few. As a corollary, it is open to a
non-nominee heir to challenge the nominee to give up the proceeds. It must be
observed here that the rights of a nominee are most easily challenged amongst
all beneficiaries.
A policy can have more than one nominee,
but as will be seen the outcome of a policy with multiple nominees is
complicated. Indian Law does not allow specifying shares for nominees (remember
they are not entitled to use the money, they can just give a discharge to the
insurer). Thus if any cheque is made out, it is made jointly to the nominees.
Irrespective of the policy having a valid nomination, at the time of claim any
person who is a legal heir can bring an order from a court to stop the claim
being paid to the nominee. If such an order is received by the insurer after
the payment has been made, no blame can be ascribed to the insurer, since he
has acted in good faith and in accordance with S.39 of the Insurance Act. But
even if a simple letter is received by the insurer after the death of the
policyholder but before any payment is made, disputing the rights of the
nominee, the insurer will refuse to pay till clear title is established.
Nominees can be major or minor in age. Since minors cannot execute a valid contract,
at the time of death of the policyholder, if the nominee is a minor, claim
cannot be discharged by him. To avoid a sticky situation, the policyholder has
to appoint another person called the Appointee.
Appointee: As described above the role of an Appointee is to give discharge
to the insurance company on behalf of the minor nominee. He is appointed by the
policyholder at the time of nominating the minor nominee. His role is
extinguished when the nominee acquires majority. Interestingly, there is no
restriction on who can be an Appointee. Anyone who is above the age of 18, and
of sound mind can become an Appointee, even if he or she is not related to the
nominee or the policyholder. The Appointee’s status is governed by the same
S.39 of the Insurance Act.
We strongly advocate that if you are a
policyholder you must unfailingly appoint a nominee. Please review your life
insurance portfolio and check for missing nominations and nominate right away.
There are terrible stories of people forgetting that their mother/father was
nominated at the time of purchase of the policy and the wife at the time of
claim was made to run from pillar to post proving her right to receive the
policy monies. Whether you are nominating, or are a nominee, or are invited to
act as an Appointee, it is important to know your rights and your limitations.
There will be more on the other “beneficiaries” in a further blog. We at Policylitmus
strongly believe that it is important to be fully informed to make the right
choices while choosing your insurance needs and that the best policy for
you is just a click away.
