A term insurance or life insurance as it is commonly known is an insurance product that guarantees cover after the death of the insured. There are various versions of term insurance available in the market. All types of term insurance have one thing in common – the nominee.
How does pure-term insurance work?
Term insurance is a pure protection life insurance policy. It provides coverage for a defined period in exchange for a specified premium amount. In case of an unfortunate event during this time frame, the insurer provides a guaranteed payout. It compensates your nominee for the loss of your income.
Affordability is a characteristic feature of term plans. Such plans do not include any investment component. The entire premium covers the mortality risk. Hence, term insurance provides sizable coverage at pocket-friendly rates. Thus, regardless of your budget, term insurance can cover your dependents’ financial necessities after an eventuality.
Defining “Nominee” in Term Insurance
A nominee is a person who receives the death benefit in the event of the unfortunate death of the policyholder. The nominee is appointed by the life insured. In most cases, a nominee is a spouse, child, or parents of the life insured.
Types of Nominees :
Following are the different types of nominees that can be appointed under a term insurance policy:
If the nominee appointed is a parent, spouse, or child (an immediate relative of the policyholder) then the nominee is referred to as a “Beneficial Nominee”. The death benefit amount is provided to the beneficial nominee only.
A nominee who is under the legal age that is 18 years of age is known as a minor nominee. The life insured/policyholder can choose to nominate a person who is under the age of 18. In this situation, the policyholder is required to declare an appointee who can receive the claim amount on behalf of the minor nominee under the term insurance policy.
A policyholder can change the nominee of the term insurance plan if they desire to. For this, the policyholder has to indulge in the paperwork so as to change the nominee before the maturity of the term insurance policy.
Benefits of Nominee in a Term Insurance Policy
The following are the benefits of appointing a nominee under your term insurance policy:
1. Accomplishes the Need for Coverage:
The primary motive of purchasing term insurance is to ensure that your family is financially secured in case of your unpredicted demise during the policy term. Appointing a nominee can fulfill the need to purchase term insurance. It is important to appoint a nominee under your term insurance policy so that they can receive the death benefit in case of your unforeseen demise. You can appoint your family members as a nominee, you can also appoint multiple nominees under the term insurance policy.
2. Policyholder can Appoint Multiple Nominees:
The policyholder has the flexibility to appoint more than one nominee under the same policy. To avoid potential disputes regarding the death benefit the policyholder can decide to appoint more than one nominee under his/her term insurance policy.
3. Nominee can be Changed During Policy Term:
A nominee can be appointed at the time of policy issuance, but the nominee can be changed anytime during the policy term. The policyholder has the flexibility to change the nominee at any time during the policy term.
A nominee has a vital role to play in a term insurance policy. After the untimely demise of the life insured, the death benefit is paid to the nominated person under the term insurance plan. The life insured/policyholder chooses the nominee while applying for the term insurance plan. Nomination can be made anytime during the policy term, however, it must be done before the maturity of the life insurance policy. Hence, it is crucial to choose the right nominee and train the nominee in the claim filing process.