Questions we get asked a lot: Is it true that the nominee gets to keep the money from a life insurance claim and the legal heirs of the insured person have no claim over it? Or would my mother not receive anything from my life insurance claim in case of my death if I made my wife the nominee? Or am I entitled to the money from my husband’s life insurance claim despite the fact that he didn’t nominate me?

The short answer is that as of today, if a person nominates their wife, child, or parent in their life insurance policy then such nominee gets to keep the money to themselves. In all other cases — say where the nominee is a friend of the deceased person — the nominee is a mere trustee who merely receives the money so it can be passed on to and distributed among the legal heirs/legatees of the deceased person. Please note this is true for only policies maturing after March, 2015, and policies that matured before the said date are governed by the unamended Insurance Act.

For any clarification, read the detailed answer that follows below.

Generally, you don’t want to be a nominee in the classic nominee-versus-heir tussle. It is a losing battle and the reason is quite simple: a nominee only “receives” money or other asset in trust, and is under a legal obligation to hand it over to the deceased’s legal heirs or legatees. In other words, a nominee is generally only a receiver who receives with the obligation of further passing on the money or the asset to the real beneficiaries — the legal heirs or legatees. That is the legal position insofar as bank accounts, saving certificates, deposits, shares, etc., are concerned. But what about life insurance?

Thanks to a recent amendment to the Insurance Act, life insurance is now an exception of sorts to the above rule. If the life insurance-policy nominee is the wife, child or parent of the person insured then such a nominee is beneficially entitled to the insurance money to the exclusion of the deceased’s legal heirs and legatees. Put differently, where the nominee is the mother, child or parent of the deceased, they get to keep the insurance money for themselves and no other legal heir or legatee can lay claim to that money.

However, the legal position in cases where the nominee is someone other than the deceased’s wife, child or parent is untouched by the amendment, and such a nominee is still only a trustee who is under a legal obligation to pass on money from the life insurance claim to the legal heirs/legatees. This was the position approved by the Supreme Court in Sarbati Devi & Another v. Smt. Usha Devi (1984) 1 SCC 424, and has not be varied by the 2015 amendment insofar as nominees other than a wife, child or parent are concerned.

The amended section 39 in the Insurance Act reads as follows:

“39. (1) The holder of a policy of life insurance on his own life may, when effecting the policy or at any time before the policy matures for payment, nominate the person or persons to whom the money secured by the policy shall be paid in the event of his death:
Provided that, where any nominee is a minor, it shall be lawful for the policyholder to appoint any person in the manner laid down by the insurer, to receive the money secured by the policy in the event of his death during the minority of the nominee.

(7) Subject to the other provisions of this section, where the holder of a policy of insurance on his own life nominates his parents, or his spouse, or his children, or his spouse and children, or any of them, the nominee or nominees shall be beneficially entitled to the amount payable by the insurer to him or them under sub-section (6) unless it is proved that the holder of the policy, having regard to the nature of his title to the policy, could not have conferred any such beneficial title on the nominee.”