Who gets the insurance money if a policyholder dies?

A loved one’s demise can be heart-breaking. But if we have financial dependants, we must ensure that we leave behind a tidy sum for them so that they are not financially stranded, if we were to die. The importance of life insurance has been overwhelmingly felt during this Coronavirus pandemic.

But merely buying a life insurance policy isn’t enough. As policyholders, you should ensure that the money reaches the right person after you pass on. This depends on how you have registered your legal heirs in your policy documents, your Will (if you’ve written one) and whether or not you’ve taken any loan against this policy. The person who goes to the insurance company to make a claim has to also inform the firm of her capacity earlier mentioned in your insurance policy.

Nominee

A nominee is the person who is entitled to receive the funds. Like all investments, even insurance policies mandate that the policyholder mentions a nominee while buying a life insurance cover. You can change the nominee mid-way through the policy’s tenure.

If the nominees die before the policy matures or the insured person expires, then the amount secured by the policy shall be payable to the policyholder himself or his heirs or legal representatives or succession certificate holder.

The matter of whether a nominee should receive the funds or should the legal heirs is delicate and can cause a delay in claims. Hence, insurance companies wash their hands off the legal liability, by inserting a clause “….The insurance company does not accept any responsibility or express any opinion as to its validity or legal effect.”

Beneficiary

The beneficiary is the true heir to the policy proceeds, after the demise of the policyholder. A beneficiary can be a person who is insured (in case it’s a money-back or endowment policy), proposer, or his nominee or assignee or someone who has been proved to be an executor or administrator.

If the insured had mentioned a beneficiary in the will and nominated another person in the insurance policy, then the ‘Will’ will take precedence and the proceeds will go to the beneficiary upon the demise of the insured.

In case there is any legal representative nominated by any court to withdraw the money, then the same would include the beneficiary as well.

Assignee

Sometimes, we take a loan against a policy that we may have bought. But if the policyholder dies, the loan needs to be repaid first. That is when an assignee comes in. In case a loan is taken against an insurance cover, the policy gets transferred to the lender. This lender becomes the assignee.

So, if the person dies during this assignment period, then the family or legal heir will not get the funds. The claim would be handed over to the assignee as a loan has already been taken against the policy.

Once the loan is paid back then the policy is reassigned or transferred back in the favour of a policyholder. Under such a circumstance, the nomination too is automatically revived. Assignment does not cancel the nomination but affects the rights of the nominee based on the situation.

If there is a partial assignment, then only that portion of the funds is restricted from being handed over to the legal heir or nominee.

Appointee

If a nominee appointed for a policy is below 18 and doesn’t turn major at the time of the payment of the insurance claim, then the amount is paid to an Appointee, on behalf of the minor.

Where the nominee is a minor, the appointee secures the funds, handed over under a policy, until the minor nominee turns 18.

Executor

While a Will is written to distribute the assets of a person after his or her death, ensuring that the actual distribution happens as per the deceased’s wishes is the task of an executor. The executor’s duty is to take stock of all the assets mentioned in the Will, account for the debts or taxes and manage the affairs, including transferring the assets to the correct party as per the Will.

Usually, the lawyer, accountant or a trusted family member is nominated as an executor, given the complexity of the matter.

Administrator

If there is a situation where an executor has not been mentioned in a Will, then the court appoints an administrator who acts as an executor of the Will.

Another circumstance that can arise is that the actual executor named in the Will of a deceased refuses to be an executor or is too old and unable to take on the responsibilities of an executor. Here too an administrator would have to be appointed by the court.

But what if you haven’t paid the premium?

The googly comes when you haven’t paid the insurance premiums. If the premiums of the policy haven’t yet been paid and the policy-holder dies, no one gets the money. If premiums are paid for less than 3-5 years, all the benefits are terminated, and nothing is payable.