Four steps to make term insurance claim smooth for your nominee

The ultimate objective of buying term insurance is to ensure our family retains its lifestyle, dreams, and goals whether in our absence.

People who buy term insurance expect two things. First, the money should get paid, and two, it should be paid without any inconveniences. For the money to be paid, one needs to ensure that disclosures are correct and premiums are paid on time. But even after all this, there could be other hurdles that could make things difficult at the time of claim.

Here are some points you should look at to ensure the experience is hassle-free for your family.

Keep all documents in one place

Given the nature of term insurance, you’ll be completely out of the picture at the time of claim settlement. Hence, you should keep your policy and all other important documents in a safe, secure place and inform your nominee about it. You can also create an e-insurance account, store all relevant documents in digital format and share the account details with your nominee. This will ensure they have ready access to the documents at the time of claim.

Take your nominee through the claims process

If anything goes wrong at the time of claim, you won’t be there with your nominee to make things right. So, to ensure you don’t leave any loose ends that might trouble them later on, it is important you sit down with your nominee, take them through the claim settlement process, give them a list of documents they’ll need to submit, etc. And if you've bought the policy through a financial advisor, make sure you connect them to your nominee and share contact details - so that in the event of a claim, they can help your family get the claim amount without hassle.

Also read: Seven money tasks to complete  after a loved one’s death

Opt for the Married Women’s Property Act

As per the law, your creditors have a right to the term insurance payout received by your nominee. Only after all your loans and liabilities are settled will your nominee get to claim any money. Besides, there could also be family members who could stake a claim, based on succession laws.

This can be very inconvenient - but there’s a way out if you’re married and male. You can purchase your policy under the Married Women's Property Act - which is a sure-shot way to ensure that the term insurance claim is paid to your wife and kids, and no one else. And they can then decide which payouts to make first and prioritise their needs accordingly.

Please note: You can sign the MWP addendum only at the time of buying the policy. And, once MWP is added to your term insurance policy it cannot be changed or removed by anyone - it stands valid even in the case of a divorce.

Choose the claim payout option wisely

When your nominee receives the claim after you pass away, they will suddenly have a huge balance in their bank account. Unless they have prior knowledge or experience, it might become difficult for them to manage it. To ensure that they don’t mismanage the money in poor investments, you should choose an option that pays the claim in the most helpful way.

You can choose from among the following claim payout options -

-Lump-sum payout

Under this option, your nominee will receive the entire claim amount in one single payment. You can pick this if you have some major loans or liabilities that you prefer to be settled off quickly. As soon as your nominee receives the amount, they can immediately pay off the loans and become debt-free. You can also choose this option if you’ve not taken any loans, but are absolutely certain that your nominee will know what to do with the large sum of money.

-Monthly income payout

If you choose this option, the claim amount will be paid to your nominee in fixed monthly instalments for a certain period of time. You can choose this option if you don’t have loans to be paid off, and wish for your family to have a sustained, regular income for their monthly expenses.

-Lump-sum + Monthly income payout

This is a combination of the above two options - where a fixed amount will be paid to your nominee in one shot, and the remaining amount will be credited every month for a certain period. You should select this option when there are loans and liabilities that need to be settled immediately and also to sustain monthly expenses to meet in the long term.

So, keeping all documents at one place, helping your nominee become familiar with the claims process, adding the MWP addendum at the time of buying the policy, and choosing the right claim payout option are four ways to make your nominee's life simple at the time of claim.