If you nominated someone, then this individual known as a nominee, acted as a trustee but had no ownership over the claim amount. It did not automatically indicate that s/he would receive the death claim.
Hence, the nomination did not mean an ownership of claim amount. Instead, the nominee was assigned the task of ensuring that the claimed amount would be distributed amongst the legal heirs or as per the terms and conditions of the Will.
This led to many long-drawn legal battles between nominees and legal heirs over the claim amounts of the insured. This was the reason that the Insurance Regulatory and Development Authority of India, or IRDA, introduced the concept of Beneficial Nominee.
Now, as per the new rules, the death claim amount will be payable to the nominee ONLY. So should you nominate your children (or spouse or parents), other legal heirs cannot claim the amount. Because whoever you nominate in your life insurance policy will be considered as the Beneficial Nominee and will avail of the death claim. Even if legal heirs try to claim the death claim amount, they will not be successful.
This brings about a lot of clarity and avoids legal battles.
NOMINEE = BENEFICIAL NOMINEE. This is the individual or individuals to whom the death benefits will be payable, irrespective of legal heirs claim.
What to consider before you nominate someone
# Be very clear in your mind who you want to nominate and who should avail of the death claim payable in your absence.
# You will have to state your nomination during the purchase of the life insurance policy. However, you can even change the nomination during the policy period. But this does not come free. The change or cancellation of nomination will cost you Rs 100 for each such alternation.
# If you want to add more than one nominee to your policy, then you must mention the percentage of the benefit to be shared among the nominees.
# You can use the option of successive/alternate nomination in life insurance. This is nothing but the nomination order. For example, nominate the claim amount to person A. If he is not alive at the time of death claim, it can go to person B. If B is not alive as well, it can go to person C. All the names of A, B and C need to be declared upfront at the time of successive nomination in life insurance.
# The nominees’ details are generally printed or endorsed on the policy certificate. If such information is not available on policy document, then the nomination is not valid.
# Suppose you nominated your friend or someone who has no insurable interest on your life, then such non-relative will not be treated as the beneficial nominee. In such a situation, your actual beneficial nominees or legal heirs can prove that he or she is not a beneficial nominee and can get the claim amount from the nominated person.
# A valid Will still can negate the rights of a beneficial nominee and money can be disbursed according to the Will of the insured.