SUM ASSURED, PREMIUM, NOMINEE, BENEFICIARY
1. What is sum assured and premium of a policy?
· When signing a life insurance contract, the insurer and the insured agree on an amount that would be payable if the insured dies, which is called the sum assured (SA).
· SA should ideally be sufficient to see the dependents of the insured through till they are able to fend for themselves.
· It should typically be equal to 6 times of the annual income or 10 times of the annual expenses of the insured and also cover his long-term liabilities.
· Premium is the amount which the insured pays to the insurer for covering him against risks mentioned in the insurance policy, on the basis of which the policy remains active.
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In traditional policies, the SA determines the premium, while in Ulips the premium determines the SA.
2. Who is the nominee and beneficiary of my policy?
· The sum assured (SA) is payable to the persons appointed as nominees by the insured.
· The policyholder has to furnish the full name, address, age and their relationship.
· The person appointed may or may not have any insurable interest, which means that non-relatives can also be appointed as nominees.
· A policyholder can appoint multiple nominees and can also specify their shares in the policy proceeds.
· For the insurer, a nominee is just a person to whom it discharges its duty of paying the claim.
· Nominations are flexible and can be altered any time during the term of the policy.
· Typically, important developments in life such as getting married or giving birth to a child should make the insured revisit his nomination.
· Change of nominee only requires an application to be made by the insured in a standard form, cancel the name of the existing nominee(s) and replace it with the new one(s).
· While a nominee is paid the claim amount by the insurer if the insured dies during the term, a beneficiary stands to ultimately receive this amount.
· If the insured’s legal heir is a beneficiary, he can, under the succession law, claim the amount even from the nominee.
· To prevent legal hurdles for the beneficiary, the insured should ideally name his beneficiary as the nominee.
· If you take a policy on your own life, the SA amount is usually paid directly to the nominee, once the insurer receives proof of death.
· If you have a joint life policy, the benefit is usually paid to the surviving policyholder named in the policy.
· If you have a mortgage protection life insurance policy, it has to be ‘assigned’ by you (assignor) to your lender (assignee) through a written deed with a notice to the insurer.
· It means that as long as you have a mortgage, the policy benefit will be paid to your lender, who will use the money to clear your mortgage and pay the remaining amount, if any, to your dependants.
· The assignee also acquires the complete title of the policy and has the power to sue, reassign or surrender the policy if required.