Financial planning is a continuous process and differs for every individual based on their requirements. However, one common thread for all financial planning is being prepared for unfortunate events. A life insurance policy is the perfect safety net that helps you stay prepared in case things go down south. Therefore, securing your finances requires you to invest in a robust insurance cover. While there are various policies to choose from, a term insurance plan is a smart choice for the cost-conscious buyer. But what is term insurance?
Term insurance is a type of life insurance policy where the insurance company insures the policyholder for a fixed tenure at a specified price. This price is known as the premium of the term plan. This policy covers only the situation of death and has no maturity benefits. Therefore, it is also called a pure-life policy. In the unfortunate event of the demise of the policyholder, the insurer compensates the dependents with the policy’s sum assured. These dependents in an insurance plan are formally defined as nominees. Here’s all you need to know about nominees in a term insurance policy.
Who is a nominee?
A nominee in a term insurance policy is the person who receives the death benefit in case of the policyholder’s demise. In most cases, the nominee is the spouse, children or parents of the insured. However, there are no restrictions on who can be appointed as one. The insured can appoint any person whom they consider to be a trustworthy individual capable and the beneficiary of the sum assured received from the insurance company.
What is the role of a nominee in a term insurance plan?
In a term policy, the nominee has a vital role since this individual is responsible for being the beneficiary and/or the caretaker of the compensation offered by the insurance company. On an untimely demise of the insured, the insurance company pays the death benefit to such a nominated person. This person can be selected by the insured at the time of the policy purchase and even modified subsequently from time to time. However, you must keep in mind that the nomination must be made before the policy matures.
What are the different types of nominees that can be appointed?
Here are the different types of nominees that can be appointed:
- Beneficial nominee
If a parent, spouse, child or any immediate relative of the policyholder is appointed as the nominee, then such nominee is referred to as a beneficial nominee. The death benefit in a term plan is provided to such beneficial nominees when specifically stated.
- Minor nominees
As the title suggests, a minor nominee is an individual under the age of 18 years. The insured can nominate such an individual who is below 18 years. But, in such situations, the policyholder is required to declare an appointee who can receive the claim amount on behalf of such a nominee.
Changing the nomination of your term plan is also possible. Moreover, when understanding what is term insurance, the policy features of a term plan, and its coverage, it is important to note that there is no restriction on how many times you can change the nominee. However, there is a stipulated procedure that the policyholder must follow before which differs among insurance companies. One thing to note is that such a change in nomination must be made before the policy matures.
What are the advantages of appointing a nominee to a term insurance plan?
- Fulfils the need for coverage
An advantage of having a nomination is that the policyholder knows the beneficiary of the insurance proceeds will be paid to the specified individual. Therefore, the purpose of buying an insurance plan is fulfilled.
- Multiple nominees
Using the nomination facility, a policyholder can appoint more than one nominee. Further, the proportion in which each nominee receives the proceeds can also be mentioned in the nomination form.
- Change of nominee
The advantage to having a nomination in the insurance policy is that the policyholder can change it whenever they wish to. This is generally handy when individuals get married and want to nominate their spouse or children as their life stage progresses.
There are different types of term insurance plans. Selecting one can often get tricky. Thus, to aid in the selection process, you can make use of a term insurance calculator. This nifty tool helps you determine the premium amount based on the different options that are available. In this process, the term insurance calculator also allows you to select suitable add-ons such as the critical illness cover and accidental death cover that further enhance a term insurance policy’s coverage.