If an insured dies, the nominee will get the money but kin or creditors can stake a claim. Ways to prevent this. . .
Every insurance policy asks you to appoint a nominee.
This person receives the money if the insured dies during the policy tenure. But a close relative can always take the nominee to court, asking for part of the claim. In many cases, they may even win. There have been many such disputes within a family. Here are some common ones:
- Brother is the nominee but the wife claims the money;
- Wife is the nominee but after insured's death, the mother says she has a right to the claim. Or vice versa;
- Other close relatives, too have fought the nominee for the money.
NOMINEE RIGHTS
Nomination is a right conferred on the holder of a life insurance policy to appoint a person or persons to receive the money in the event of death. However, the nominee does not have a right over the money received to the exclusion of other legal heirs.
If you want to make sure that a person you appoint should get the entire money and relatives should not be able to make a claim, opt for transfer of assignment
ASSIGNMENT
An assignment of a policy may be defined as a method of transferring the beneficial interest, title, right and liability under a policy absolutely or conditionally by the insured to another person. This is mentioned under Section 38 of the Insurance Act, 1938.
The person to whom you transfer all rights and liabilities in an insurance policy is called the assignee. This process can be used to ensure that the proceeds go to the deserving person and also to pay off your creditors.
In case you do not carry out this process, the creditors, too, will fight for the money and take the nominee to court for settling their debt, as they are legally entitled to it.
In case you are a businessperson or have monetary liabilities, and you want your wife to get all the money, you must buy the insurance under the Married Women's Property Act.
MARRIED WOMEN'S PROPERTY ACT
The basic objective for anyone to opt for a life insurance policy is that the family of the insured is protected from financial difficulties in case of death.
Consistent with that, the Married Women's Property Act is designed to protect a man's family from creditors who might stake a claim on the proceeds of the life insurance policy that are due to his wife and children.
If you buy life insurance under this Act, creditors cannot seize the proceeds of the policy under any circumstances.
This policy constitutes a trust in favour of the wife and/or children and no separate assignment is necessary. Wife and children are made nominees of the trust. However, this provision is applicable only to term plans.
Whatever options you may choose, don't forget to make a registered will.
The writer is director, Bharat Parekh Financial & Insurance Services
© 2025