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Following the previous installment of CoverNote which mulled reviewing statutory restrictions on who can be nominated to various financial investments, I received a call from a very senior insurance executive, now retired.
Recalling the column that such rules would have had valid reasons in a historical context, and agreeing that they need to change with our changing times, he had interesting and thought-provoking information to share. Too many death claims, he said, were lying unsettled because of ‘erroneous’ nominations. For example, there is an inclination in Kerala to nominate life policies to the church. This, at the time of the claim, can lead to litigation from the next of kin. The insurance company is caught holding the claim cheque.
To avoid such family vs institution/ friend/ charity face-offs there is a concept of beneficial nominee and receiver nominee.
Under The Insurance Laws (Amendment) Act of 2015, immediate family members such as spouse, children, or parents are entitled to receive the claim amount as a beneficial nominee implying that they have a right to receive the money over any other legal heir.
If a policyholder wishes to nominate anybody else, the insurance company will want to know why and, if there are potential beneficial nominees, will decline to register the nomination. If it goes through, the receiver nominee acts only as a custodian of the death benefit, and legal heirs can file a claim, so it is better to keep them informed.
Apart from this, another reason to discourage non-family nominees is moral hazard. That is, an outsider nominee could have a vested interest in the death of the nominator. Debatable seeing the crime stories in the news, but an argument nonetheless.
Other twists in the plot can always come up. If the nominee predeceases the nominator, the nomination is void and the investment title becomes open again. Here comes the reason to nominate someone younger and maybe make successive or cascading nominations. That is, nominee is A, and if A predeceases the nominator, B is the nominee, for example.
So, don’t just nominate, but think it through.
(The writer is a business journalist specialising in insurance & corporate history)
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