I want to highlight an important point that is ignored while taking an insurance policy by most of us. Let me tell you a story first.  Mr. A had a health insurance policy dating back to 2001, with his mother listed as the nominee. Unfortunately, in 2003, Mr. A’s mother passed away, and he failed to update the nominee’s details. Tragically, in 2021, Mr. A met with an accident and subsequently passed away. His wife was left lost and clueless to navigate the reimbursement process, which required upfront payments. However, due to the absence of an updated nominee, she faced additional hassles in pursuing the claim alongside managing her job and caring for her young child.

As a financial planner, I often come across cases where individuals overlook the significance of adding a nominee to their insurance policies. Neglecting to update or include a nominee can lead to complications. Let’s delve deeper into the know-how of how a nominee functions in an insurance policy. 

The Significance of a Nominee in Insurance Policies:

A nominee is the person designated to receive the sum assured in the event of the policyholder’s death. While insurance policies are often acquired to mitigate risks or achieve better returns, the inclusion of a nominee is equally crucial. Various insurance products serve different purposes, ranging from traditional policies and ULIPs (Unit Linked Insurance Plans) for returns and risk mitigation to term insurance, health insurance, critical illness, and personal accident plans for risk mitigation alone. However, we often overlook the importance of nominees in these policies.

Consequences of Neglecting to Update or Include a Nominee:

One of the consequences of failing to add or update a nominee in an insurance policy is the difficulty faced by beneficiaries in accessing the funds. In such cases, insurance companies may not process claims without a valid nominee. Shockingly, the unclaimed amount in the insurance industry amounts to around Rs 25,000 crore (according to recent data). While these funds are eventually allocated to senior citizen schemes for societal development, it raises an important question: What if the immediate family members require the funds urgently? Educational expenses, outstanding home loans, or even a spouse’s dependence on the deceased policyholder’s income are situations where the sum assured becomes crucial.

Nominees in Different Types of Insurance Policies:

Health Insurance and Personal Accident Policies:

Even in health insurance policies primarily designed for medical treatments and hospitalizations, the inclusion of a nominee is vital. Although reimbursements are typically the norm, unfortunate circumstances such as the policyholder’s death or accidents may require the nominee’s involvement to facilitate the reimbursement process.

Term Insurance and Traditional Policies:

Traditional policies are often sold based on the promise of returns and the sum assured in the event of the policyholder’s sad demise. However, if the sum assured is not specified or if a nominee is not appointed, it can lead to complications. Legal battles for property and assets are common, and similarly, without a nominated beneficiary, the insurance payout may remain unclaimed. 

Individuals must recognize the significance of adding a nominee to their insurance policies. While focusing on returns and risk mitigation is essential, ensuring that your loved ones can easily access the sum assured in case of unforeseen events is equally important. By overlooking the nominee’s details, individuals may inadvertently subject their families to unnecessary hardships during an already challenging time. As a financial planner, I strongly recommend that you review and update your nominee details in all your insurance policies promptly. Safeguarding your family’s future should be a priority, and a nominated beneficiary can play a pivotal role in ensuring a smooth claims process.