Nomination saves unpleasant battles

If you thought merely buying the right amount of insurance cover for your family can take care of all future risks you could be highly mistaken. For, nominating your legal heir is equally important. In the absence of nomination your family may have to run from pillar to post in times of need to claim the financial wealth you have created for them during your lifetime.

Insurance company officials state that around 90% individuals do nominate their legal heirs, but then there's still is a good 10% that refrains from doing it.  And if you are one of the 10% who has not made a nomination here's what your family would be doing in your absence.

Know that in the absence of a nomination the Indian Succession Act would prevail. Says Harish Jariwala, Lawyer, Consumer Court, "Now if you've made a will the insurance proceeds will be distributed on that basis since a will would always supercede a nomination but if there's no will the proceeds would rightfully go to the legal heirs i.e. the spouse and children."

A nominee is merely a trustee in the eyes of law. The nominee will hold the funds until the time the legal heirs make a claim.

Which means even if you have nominated anybody other than your spouse and kids, the right to the insurance proceeds would still vest with your spouse and children since in the eyes of law they are considered to be your legal heir. Now in case there are no children the spouse would be the legal heir. The legal heir would have to submit an affidavit, stating their relationship with the deceased, the assets held etc.

For instance in case the policyholder dies leaving behind his wife and 2 children who are above 18 years of age, all three would be entitled to a one third share each in the insurance proceeds as per law in the absence of nomination. If the children are above 18 years of age they can renounce their rights by submitting a no objection certificate in favour of the mother which would mean the mother would be entitled to the entire amount. Subsequently the court on verification of the details of the insurance policy will issue a succession certificate in the name of the mother.

In case you nominate someone other than your immediate family you may have to reason out the same satisfactorily with the insurance company. HDFC Standard Life Insurance company officials say that it is a moral hazard if you have nominated lets say one of your distant cousins and not your immediate family. As, chances are your cousin could have a monetary interest in your early death. And in the process the insurance company would stand to lose the regular premia it would have otherwise received if you were alive.

IRDA rules state that if a claim is payable and the insurance company is unable to determine the legal heir, it can keep the money with itself till such time that the court order is out. Wondering how much time a court decree would take? Nothing short of 4 - 6 months. 

Geeta Nair