NEW CATEGORY OF BENEFICIAL NOMINEES

PARENTS, SPOUSE OR CHILDREN ARE BENEFICIAL NOMINEES AND NOT MERE RECEIVERS OF INSURANCE AMOUNT

THE VOICE OF CHANDIGARH – SEEMA PAHWA HANDA:

In Sarbati Devi vs. Usha Devi (1984) 1 SCC 424, the Supreme Court held that nomination would not confer any beneficial interest on the nominee and it is a mere authorization to receive the insurance amount, which can be claimed by the legal heirs of the assured in accordance with law of succession, governing the parties. The judgment has been followed successively by various High Courts in a long line of cases, holding that mere nomination effected under Section 39 of the Insurance Act, 1938 shall not deprive the legal heirs to the amount under the Insurance Policies.

Pursuant to the recommendations of 190th report of the Law Commission of India, Section 39 of the Insurance Act, 1938 was amended by the Insurance Laws (Amendment) Act, 2015, which has come into force w.e.f 26.12.2014 .

The amended Section39(7) reads as under:

“(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.”

By virtue of amended sub-section (7) of Section 39, a category of beneficial nominee or nominees has been added, which includes the policy holder’s near or immediate relatives only such as parents, spouse or children or any of them and they shall have  a beneficial interest in the amount payable under the  policy, on the death of the assured. Accordingly, a beneficial nominee no longer remains a mere receiver nominee, whose rights under the unamended section were subject to rights and claims of the legal heirs under the law of succession. A beneficial nominee is final undisputed beneficiary of insurance amount unlike a regular nominee.

As per the amended section39(8) where the nominee, or if there are more nominees than one, a nominee or nominees, to whom sub-section (7) applies, die after the person whose life is insured but before the amount secured by the policy is paid, the amount secured by the policy, or so much of the amount secured by the policy as represents the share of the nominee or nominees so dying (as the case may be), shall be payable to the heirs or legal representatives of the nominee or nominees or the holder of a succession certificate, as the case may be, and they shall be beneficially entitled to such amount.

Further, section 39(10) of the Act as added by Amendment Act, lays down that the provision of Sub-section (7) shall apply to all policies of life insurance maturing for payment after the commencement of the said Act.

Also, amended section 39(11) provides that where a policyholder dies after the maturity of the policy but the proceeds and benefit of his policy has not been made to him because of his death, in such a case, his nominee shall be entitled to the proceeds and benefit of his policy.

From the above provisions, it can be gathered that if the policyholder survives till the maturity of the policy, all benefits payable under the policy will be paid to the policyholder. In case the policyholder dies after the maturity of the policy but before getting the proceeds and benefits, then the nominee shall be entitled to the proceeds and benefit of that policy.

But, where the nominee or nominees die subsequent to the death of the policy holder but before the payment of amount secured by the policy, then the amount secured by the policy as represents the share of the nominee or nominees shall be payable to the heirs or legal representatives of the deceased nominee or nominees or the holder of a succession certificate, as the case may be, and they shall be beneficially entitled to such amount.

If the policyholder survives till the maturity, all benefits payable under the policy will be paid to the policyholder. In case the policyholder dies after the maturity of the policy but before getting the proceeds and benefits, then the nominee shall be entitled to the proceeds and benefit of that policy.