Nominee vs legal heir: who gets the life insurance money?

The insurer pays the nominee registered on the policy, and it is protected when it pays that nominee in good faith. Whether the nominee keeps the money depends on who they are: under Section 39 of the Insurance Act, a nominee who is the policyholder's parent, spouse or child is beneficially entitled to it, subject to the section's own conditions, for policies maturing for payment after the 2015 amendment. For other nominees, and for disputes within the family, take legal advice; this page is general information, not legal advice.

Two questions get mixed up after a death: whom the insurer should pay, and to whom the money finally belongs. The policy and Section 39 of the Insurance Act, 1938 answer the first clearly. The second can depend on the family's circumstances and on succession law.^[1]

Who the insurer pays

A policyholder can nominate one or more people to receive the money on their death, when taking the policy or at any time before it matures, and can appoint someone to receive it for a minor nominee. IRDAI's circular adds that a policyholder can name several nominees and give each a percentage share.^{[1, 2]}

A nomination can be changed by an endorsement, or even by a will, before the policy matures. But until the insurer receives written notice of a change, it is not liable for paying the nominee on its records in good faith. The insurer must give a written acknowledgement whenever it registers a nomination or a change.^[1]

Who keeps the money

The beneficial-nominee rules apply to policies maturing for payment after the Insurance Laws (Amendment) Act, 2015 came into force, and they do not defeat a creditor's right to be paid out of the policy proceeds.^[1]

Where the law is not spelled out

Section 39 makes the money payable to a surviving nominee, whoever that is. But it says a nominee is beneficially entitled only when the nominee is the policyholder's parent, spouse or child; it does not expressly say whether someone else, such as a brother, a sister or a friend, keeps the money for themselves. Do not assume either way: take independent legal advice before the family divides the money or disputes it.^[1]

Policies under the Married Women's Property Act are different. Section 39 does not apply to a policy to which section 6 of that Act applies, except in the case its proviso sets out. The policy schedule says whether the policy was issued under that Act.^[1]

What to do

1. 1

   Read the policy schedule and any endorsements.

   Note the nominees, their shares, any appointee for a minor, any assignment, and whether the policy says it was issued under the Married Women's Property Act.^[1]

2. 2

   Look for the insurer's acknowledgement of any change.

   The insurer must acknowledge a registered nomination or change in writing; a change it never received may not bind it.^[1]

3. 3

   Let the registered nominee make the claim.

   The claim steps are the same whoever finally keeps the money; see filing a death claim.

4. 4

   If the family disagrees, get advice before the money is paid out.

   The insurer is protected when it pays the registered nominee in good faith without notice of a change, so take any disagreement about who keeps the money to a lawyer early, rather than expecting the insurer to decide it.^[1]

ClaimAssure is an independent private platform. It is not an insurer, IRDAI, Bima Bharosa or the Insurance Ombudsman, it never files anything on your behalf, and it cannot promise any outcome. What it does is read your documents and show you what they say.

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