Should you have more than one candidate in your term insurance?

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In a world full of uncertainties, it is important to ensure that a bright future for your family is certain and not left to chance. For this, you work hard, try to increase your income, maximize your savings, invest to generate good returns and do everything in your power to support your family to the best of your ability.

As long as you live, you ensure that your family will not have to struggle to achieve their dreams, whether for higher education or other stages of life. However, what if you are not there to support your family one day? Surely you wouldn’t want to leave their fate hanging in the balance if something unfortunate were to happen one day.

This is where a term life insurance policy comes in. The COVID pandemic which has killed more than 6 million people worldwide, and more than half a million in India alone, has makes people aware of the importance of having a backup plan. The death of a family member who earns an income not only has an emotional impact on the other members, but also triggers serious financial insecurities. Therefore, it is essential to be prepared for such events by choosing a term insurance plan that provides a safety net for your family.

What is term life insurance?

Term insurance is the type of life insurance that provides a huge amount of coverage (to the family in the event of the policyholder’s death) at a very small premium. For example, a 30-year-old can get a Rs 1 crore policy for a monthly premium of Rs 1100-1200 to protect his dependents. The payment can be used by the family to meet day-to-day needs, as well as to pay for major life goals, such as education and child marriage. When you choose a term insurance policy, you can decide how much should be paid to your survivors in the event of premature death.

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A term insurance policy not only provides financial security for your family in the event of your death, but also gives you the opportunity to obtain critical illness protection. By opting for certain riders, you get a financial payment if you are diagnosed with a serious listed illness like cancer, heart attack, kidney failure, etc. This way, the cost of treatment or other related costs are covered by the coverage amount, ensuring that your life goals are not derailed due to such an illness. This coverage amount is paid in addition to any health insurance plan you may be covered for.

Who are the nominees?

Through the nomination process, the policyholder can decide who will receive plan benefits in the event of death. The idea is that the whole process is smooth and without any complications. Shortly after filing and processing the claim, the insurance company can simply transfer the amount to the agent’s account, as these instructions are clearly mentioned in the policy document by the policyholder. The nominee is usually a dependent family member, such as the policyholder’s parent(s), spouse or children. In some cases, distant relatives such as nephews, uncles and aunts may also be nominated as candidates.

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In the event that the policyholder decides to appoint their minor child as proxy, it is important to also appoint a proxy because children under the age of 18 are not eligible to receive claim benefits directly. The appointee is then responsible for managing the financial benefits until the minor applicant reaches adulthood.

Should you nominate multiple candidates?

When a family member who earns an income dies, there are often several dependents left. It is often said that money can be the cause of family conflicts. Although this is not true for everyone, it is always best to take steps to avoid such a situation. To ensure that the interests of all dependents are protected and that there are no conflicts within the family later on, it is often advisable to name multiple candidates in such scenarios. This way, all the candidates mentioned in the policy can share the financial benefits. Moreover, as the policyholder, you can even choose the percentage in which the profits would be divided among the applicants.

It is common for policyholders to appoint a single proxy, believing that he will look after the interests of the whole family. This is particularly the case when the policyholder appoints his spouse as agent. However, in some rare scenarios, it can also turn out to be a costly mistake if the candidate unfortunately dies along with the policyholder. It can also become difficult if payment is needed for more than one dependant. Due to the appointment of a single attorney in such a scenario, the claims process may become too complicated as the insurer would then have difficulty in identifying the legal heir of the insured. In such a case, the survivors would have to go through a complicated and lengthy legal process to identify the legal heir who would eventually get the benefits from the policy.

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All this complication, although it cannot be completely avoided, can be avoided to some extent by naming several candidates and allocating a specific percentage of the sum insured to each of them. In the event of the death of one of the candidates, his share would be divided proportionally according to the percentage allocated between the other candidates if there is no other will / legal heir in conflict. This ensures that recipients get their share hassle-free in most, if not all, cases.

The appointment process is crucial to protect the interests of the insured’s family. However, the appointment of a single candidate should not be done by default as many do. It is advisable to nominate more than one candidate or to understand family dependents and future needs. Also, don’t stop there. It is also important to inform the candidate of the policy and to share the policy documents with him. In addition, the policy and applicant details should be reviewed annually, and the insurance company informed of any changes.

(By Sajja Praveen Chowdary, Head of Term Life Insurance, Policybazaar.com)

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