By PV Subramanyam

Insurance is a risk cover – don’t risk the nomination part 

Most people name their beneficiaries when they buy the policy, and then never give the subject another thought. That could be a mistake. Good consultants recommend that you take the time to review your policies' beneficiary designations periodically (annually or whenever there is a birth, death, graduation, divorce, etc.) and make sure they reflect your current needs, goals and circumstances.

Here are some things to consider: In India in most forms, you can name the nominee and mention the designation.

Indicating individuals by name

”Padmini, my wife, whose date of birth is 12 July 1977 and the address is Plot 12, street 14, Guntur, and my children Ram, and Suresh”.  The advantages of such phraseology are that it is simple, clear, and leaves no room for misunderstanding about whom you wish to nominate and give the monies to.

However, like all simple things, it has some problems. One, it is rigid. If you identify your current children by name, and then have a third child later, that child will not share in the policy. Unless you revise your beneficiary designations, this youngest child will not share in the life insurance proceeds.

Also, if a named beneficiary dies before you, the beneficiary’s heirs may be cut off from receiving proceeds. Take a case where all your three children are married, and have children. In case one of your children should pass before you, the spouse and kids of that child of yours will receive nothing.

So if you have a married child, ensure that the beneficiary designation is now changed to reflect his spouse, kids by name and designation. “Mr Suresh, my son, his spouse Mrs Lalitha Suresh and their daughter Ms Anuradha.” This has more clarity than saying only “Mr Suresh”

Naming beneficiaries by the class or group

While making a will, you can use better language that will ensure omitting unintended beneficiaries by name. If beneficiaries are designated to be "all children of the insured," future children will automatically be included.

This can also be arranged so that proceeds are distributed as either per capita (based on a portion for each individual) or as a percentage per person. 

Provided beneficiary designations are clearly identified, this maybe the simplest, most effective method for naming beneficiaries.

However, there can be disadvantages. Things can become complicated if you have a complicated marriage. If you and your spouse have more than one marriage and children form both the marriages, you might have to be far more careful while naming the beneficiaries.

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The author is a financial domain trainer and can be contacted at pv.subramanyam@moneycontrol.com