Nominee in health insurance: Meaning, importance, and benefits

A nominee in health insurance is a person you choose to receive the insurance benefits if you are unable to claim them yourself. This usually happens if the policyholder passes away during a hospital stay or before a pending claim is settled. Having a nominee is required for health insurance to ensure the money reaches the right person without your family having to fight legal battles during a difficult time.

What is a nominee in health insurance?

A nominee is a person who acts as a trustee for your insurance money. If the policyholder dies, the insurance company pays the claim amount to the beneficiary. It is important to note that the nominee receives the money on behalf of the legal heirs. For example, if a father nominates his eldest son, the son receives the funds but must distribute them according to his father's will or succession laws.

Why is a nominee required in health insurance?

Nomination is essential for several reasons:

• Faster claim settlement: It allows the insurer to release funds immediately to a specific person.

• Reduced legal hurdles: Without a nominee, your family might need a succession certificate from a court, which is a slow and expensive process.

• Financial support: It ensures your dependents have quick access to money for medical bills or funeral costs.

Nominee in insurance eligibility

Eligibility to be a nominee is quite broad. Generally, any individual with a clear relationship to the policyholder can be nominated. This includes:

• Immediate family: Spouse, children, or parents.

• Distant relatives: Siblings, nephews, or nieces.

• Minors: You can nominate a child under 18, but you must appoint a guardian to manage the funds until they reach 18.

Nominee vs legal heir: Key differences

It is vital to understand that a nominee and a legal heir hold different roles under the law. While the nominee is the person named in the policy to receive the payout, the legal heir is the person entitled to own the assets.

Factors to consider while selecting a nominee

Choosing the right person is a significant decision. You should think about:

• Trustworthiness: The person must be responsible enough to use the funds for the intended welfare of your family.

• Financial dependency: It is often best to choose someone who relies on you financially, such as a spouse or child.

• Age of the nominee: If you nominate a minor, you must appoint a guardian to manage the funds until the child is 18.

• Financial literacy: The person should be able to handle bank transactions and insurance paperwork without confusion.

• Legal clarity: Choosing a nominee who is also your legal heir helps avoid potential ownership disputes later.

• Multiple nominees: You can divide the claim amount among several people to ensure everyone in the family is looked after.

• Health and age: Selecting a nominee who is much older than you might lead to problems if they pass away before a claim is made.

• Ease of contact: Ensure the person is easily reachable and their latest contact details are on file.

• Life changes: You should review your choice after major life events like marriage, divorce, or the birth of a child.

• Outstanding liabilities: If the policy is linked to a loan, remember that creditors might have a claim on the payout before the nominee.

Difference between a beneficiary and a nominee

While these terms are often used interchangeably, there is a legal distinction in the insurance industry:

How to choose the right nominee for your health insurance?

Selecting a nominee requires careful thought to ensure the funds are handled correctly. Follow these steps to make the right choice:

• Assess financial dependency: Look for individuals who rely on your income, such as a spouse, children, or elderly parents, as they are most likely to need the funds for hospital bills.

• Verify legal standing: Choose individuals who are also your legal heirs to avoid potential conflicts between the nominee and family members.

• Check age and maturity: Ensure the person is capable of handling the paperwork and financial responsibilities involved in a claim.

• Keep records updated: Ensure their contact details and identity proofs are accurate in your policy records to avoid any confusion during the settlement process.

How many nominees can you add to your health insurance?

Most insurers in India offer flexibility regarding the number of nominees. Here is how you can manage multiple entries:

• Add more than one person: You can nominate multiple individuals, such as both parents or all your children, to share the benefits.

• Specify percentage shares: You must clearly define the portion of the claim each person should receive. For instance, you can nominate a spouse for 50% and two children for 25% each.

• Default distribution: If you do not specify the shares, the insurer may divide the total amount equally among all named nominees.

• Assign an appointee for minors: If you add multiple minor children, a guardian must be named for each, or one for all.
  

Relationship with nominee example

Understanding the relationship with the nominee, as in the example, helps you structure your policy effectively. Consider a policyholder, Mr Smith, who wants to ensure his family is covered from all angles. He names his wife as the primary nominee with a 70% share, as she manages the household expenses. He also lists his younger sister as a second nominee with a 30% share to assist with his parents' care.

In another example of relationship nominee settings, a single parent might nominate their minor child as the 100% beneficiary while appointing a trusted grandparent as the appointee. This documentation provides the insurance company with a clear roadmap of who is authorised to receive the funds, ensuring the payout is handled exactly as the policyholder intended, with no ambiguity.

Challenges nominees face and solutions

Specific hurdles can delay the payout process if the nomination is not handled correctly. Zurich Kotak General Insurance provides support through digital tools and customer service to help resolve these issues. Key challenges include:

• Incorrect details: If the name on the policy does not match the nominee's ID, the claim can be stuck.

• Solution: Always double-check the spelling against their passport or Aadhaar card.

• Death of a nominee: If the nominee dies before the policyholder, the nomination becomes void.

• Solution: Update your policy immediately if your nominee passes away.

• Minor nominees: A minor cannot receive funds directly.

• Solution: Always name an adult guardian in the policy documents.

How to add a nominee to your health insurance?

You can update your policy details at various stages of your plan's lifecycle.

1. At the start: Mention the nominee details in the initial proposal form when buying the policy.

2. During the term: You can send a written request or an email to your insurer to add or change a nominee.

3. At renewal: Most online portals allow you to edit nominee details when you pay your annual premium.

4. Documentation: Provide a copy of the nominee's identity proof and your policy number to the customer service team for a smooth endorsement.

Conclusion

Setting up a nominee in health insurance is a simple step that provides massive peace of mind. It ensures that your hard-earned money is used to protect your family rather than being lost in paperwork. Make sure to review your nomination every few years to ensure it still reflects your current family situation.

FAQs

1. Can multiple nominees be added to one health insurance policy?

Yes, you can add more than one person and define their percentage share of the payout.

2. Is it mandatory to nominate someone for health insurance?

It is not a strict rule to buy the policy, but it is highly recommended to ensure the money is not stuck in legal limbo.

3. Can a policyholder nominate a non-family member?

Yes, you can nominate a friend or a distant relative, but the insurer might ask for more details to confirm the relationship.

4. Can a policyholder change the nominee later?

Yes, you have the right to change your nominee as many times as you like during the policy period.

5. Is a nominee the legal owner of the policy benefits?

No, the nominee acts as a custodian. They receive the money on behalf of the legal heirs, who are the true owners.