A Guide To Selecting Your Term Insurance Plan Nominee

The primary reason anyone gets a life insurance policy is to protect their loved ones. It provides peace of mind knowing that your family’s financial future will be secure even when you’re not around anymore. 

However, the effectiveness of your life insurance policy depends on one crucial decision – selecting the right beneficiary. In 2023, a whopping ₹48.95 crores from life insurance went unclaimed.

Selecting the right beneficiary helps the policyholder to allocate funds to the ones who need it the most and to make sure the cover amount reaches the correct party. It’s an important decision that also ensures the money from your policy is used as intended.

Before we delve into how to select the right beneficiary for your life insurance plan, let’s understand the basics – who exactly is a beneficiary ?

Understanding Life Insurance Beneficiary

A life insurance beneficiary is the person or entity that will receive the policy’s death benefit in the event of your demise. For example, the beneficiary of your policy can be your spouse, children, parents, business partner, or even a charity. You can also name multiple beneficiaries and specify the percentage of death benefits they will receive.

There are broadly 2 types of beneficiaries:

• Primary beneficiary: This is the person who will receive the death benefit after your demise. You can have one or multiple primary beneficiaries and decide the percentage of the payout they will receive.
• Contingent beneficiary: Also known as secondary beneficiary, this person will replace the primary beneficiary if they pass away before you or cannot accept the death benefit.

For both primary and contingent beneficiaries, you can further have revocable and irrevocable beneficiaries:

• Revocable beneficiary: You can change this beneficiary before your death anytime, without their consent.
• Irrevocable beneficiary: Once you name an irrevocable beneficiary, you cannot remove or change them without their consent.

Who Can Be A Beneficiary ?

The beneficiaries of your life insurance policy can be:

• Spouse: If you’re married, you can name your spouse as the beneficiary.
• Children: You can name your children as beneficiaries, however, if they are minors, you will need to appoint a legal guardian to handle the funds until they reach adulthood.
• Friends: If you have close, lifelong friends, you can name them as beneficiaries to provide for them after you’re gone.
• Other dependents: This includes anyone financially dependent on you, like your parents, siblings, or anyone else you support.
• Business partner: By naming your business partner as a beneficiary, you can ensure the business continues to run smoothly or your shares can be bought out.
• Charities and organisations: If you wish to support a cause you care about, you can name your preferred charity or a non-profit organisation as a beneficiary.

How To Select A Beneficiary ?

Follow these steps to select a beneficiary for your life insurance plan:

1. List the people who matter the most to you

Start by creating a list of the most important people in your life. It can include family members, close friends, business partners, or any charitable organisation.

2. Consider how your death would affect them financially

Consider the potential financial impact of your demise on each person on the list. This will help you understand who will face the most financial hardship in your absence.

3. Determine who is most in need of the policy money

This could be your financial dependents, like your spouse, children, or ageing parents. It could also be someone who would benefit from your financial support, such as a charitable organisation.

4. Ask them before naming them as a beneficiary

Once you have identified your beneficiaries, inform them about your intention before making any official commitments. This will allow them to discuss any concerns they might have.

How To Select A Beneficiary In Different Scenarios ?

What Happens If You Don’t Choose A Beneficiary ?

Choosing a beneficiary ensures that the debt benefit of your life insurance plan goes directly to the person you intend. When you don’t select a beneficiary, your loved ones can struggle to claim the death benefits after your demise. There can also be disputes among potential heirs, which can lead to legal battles.

Key Takeaways

Selecting the right life insurance beneficiary is important to ensure the benefit goes to the right person after you’re gone. However, certain life changes such as marriage, divorce, or the birth of a child can change your intentions. Therefore, it’s important to revise your beneficiaries whenever you feel the need to, with respect to your life stage to avoid any hassle later. Additionally, you can consider platforms like PhonePe for a seamless and hassle-free insurance purchase experience.