The critical part of purchasing a life insurance plan is choosing a beneficiary. Choosing a beneficiary ensures that your family is financially protected through the opted life insurance policy in case of untimely demise. Suppose you purchase a 2 crore term insurance plan, or a plan of any other significant amount, it is only beneficial if the plan benefits go to the right beneficiary when the time comes.
Though there are not many limitations to who can be a beneficiary, there are specific essential points to remember, i.e., in the case of a minor, you need to designate a trust or guardian for receiving death benefits on their behalf and also make sure your beneficiary is aware of the essentials of policy to file the claim etc.
Through this article, we shall explore the importance of life insurance, how one must choose their beneficiary for their life insurance plan & few tips to make this process easier.
Importance of a Life Insurance Policy
- Ensures your families & loved ones’ financial futures remain safe
- Helps to accomplish financial goals
- Ensures peace of mind
- It helps to save tax
- Helps with loans & liabilities
- Leaves a tax-exempt legacy
Who Can Be a Beneficiary?
A beneficiary can be
- An individual
- A Charitable Institution
- A Business or
- A Trust
If an insurance beneficiary is an individual, they can be a relative, child, wife/husband, friend or any person whose financial stability you want to ensure in case of your untimely demise.
Life Insurance Beneficiary’s Rules
In Case a Beneficiary is Other than Immediate Family
Usually, insurance companies recommend that a beneficiary be an immediate family member to avoid any legal dispute. But that may not be the case in some situations. For this, a concept was introduced by GOI in 2015, known as the beneficial nominee, where legal successors of a policyholder cannot claim the death benefit unless they are assigned as the beneficiary in the life insurance policy.
In Case There are No Assigned Heirs
There have been circumstances where a life insurance beneficiary was not updated or assigned. In such a scenario; the insurer follows specific mandates-
The death benefits assigned to your immediate heir, i.e. your spouse, children, and parents, are considered in such a scenario.
If you have a proper will, then Indian Succession Act 1925 is followed, where the sum assured is distributed as mentioned in your will. However, the court must issue a succession certificate. Also, an indemnity or waiver of legal proof needs to be provided to the insurer by the beneficiaries (whether there are single or multiple beneficiaries for a life insurance).
How Can One Assign Life Insurance Beneficiaries?
Usually, the beneficiary is assigned while applying for a life insurance policy, and once you assign it, your nominee shall be your legal beneficiary.
One can add or update their beneficiary later by simply filling out an appropriate form from the insurer’s website & making sure they sign a policy bond to complete the process when a witness is present.
Also, there is the flexibility to change the beneficiary numerous times if you want as per your requirements. Still, you need to ensure that the earlier and new beneficiaries know about the nomination change, so there is no chaos in the future.
Conclusion
Therefore, when choosing a beneficiary for your life insurance plan, you must know and consider the above aspects. Also, a careful understanding of life insurance beneficiary rules can help you make an informed decision concerning your appropriate beneficiary.
The above guidelines and tips shall ensure that your family is financially stable in case of an untimely demise. Remember that your life insurance plan not only safeguards your family financially but also delivers ease and comfort to you and your loved ones in your absence. Further, to avoid any disputes, your beneficiaries should be aware of any change regarding names in the policy.
