Who gets the term insurance money if a policyholder dies?

The last couple of years have impacted our lives like nothing before. With the COVID-19 pandemic, we have all learned that life is short and unpredictable. We have come face-to-face with our own frailty and are accepting the fact that death is real. If you are a main earning member of the family, you’ve definitely had thoughts of worry about how your family will cope without you - emotionally as well as financially - if you’re suddenly not there anymore. And, a quick Google search can tell you that buying a term insurance plan is the best strategy to protect their well-being (at least financially) - should your death happen!

Term Insurance is an affordable and simple type of life insurance that provides your family with a sum of money if you pass away during the term of the policy. As long as you pay your premiums on time and keep the policy active, your family will receive a death benefit - which they can use to fulfill their monetary needs - be it regular monthly expenses or long-term dreams and goals - without compromising their current lifestyle. 

In this article, we’ll learn about who this death benefit will be paid to, and what you could do to ensure it reaches the people that you intend it for. Let’s dive right in!

Who gets the death benefit amount, from term insurance?

The Nominee does. When you buy a term insurance policy, you are required to identify a nominee (or multiple nominees) who will receive the claim amount when you pass away. You can choose any family member to be your nominee - your wife, children, or even your parents. 

• While picking a nominee, think about whether they can go through the claims process by themselves or not. If you think they can’t, ensure you choose a good, trusted financial advisor to work with to help and guide them, when you won’t be around. 
• Further, think about whether or not they’ll be able to manage a large sum of money by themselves. If you think they might lose the money in poor investments - ensure you choose a monthly income component in the claim payout - so their needs are secured in the long term. 

Note - You can add or change nominees any number of times during the course of your policy term. So, ensure you are updating your nominee according to your life changes - as the policy can last many years - and decades even!  

But what will happen if the nominee dies before the policyholder in term insurance policy? Who will get the claim amount then? Let's find out.

Who gets the term insurance claim, if the nominee is no more?

We have heard of extremely tragic incidents where many members of the family pass away due to one unfortunate incident. In such situations, it could happen that the person you’ve chosen as the nominee is dead by the time of the term insurance claim. So, what happens if nominee dies in term insurance? What can you do about such a situation? 

Well, in case the death of the nominee happens before yours, you must ensure you change/ update nominee details. This can get trickier, in case both deaths happen at the same time (or, you do not have enough time to update the nominee details).

One good way to work around this is to create a Will. In the Will, you can include detailed instructions on who should receive the amount, and on what conditions. The Will is a strong instrument that can help you protect the interests of your family - should something happen to the person you selected as a nominee. 

An interesting point. You can also use the Will to give an amount from the claim to a person you’re not related to. It could be a cousin, even a friend. 

And similar to a Nominee - the Will can also be changed any number of times. Your last Will is the document that will be implemented with respect to how you wish to disburse your term insurance amount. 

Who’ll get the term insurance claim, if there’s no will?

In the unfortunate circumstance that you did not create a will, and your nominee is dead too - the claim amount will be distributed amongst your legal heirs. 

This, however, could be a tedious process - and your family might need to wait for many days before getting the Legal Heir document to prove their right to the claim amount. And meanwhile, they could be hounded by bills, creditors, and other payments that need to be done. 

So, to avoid this, ensure you are updating your nominee details, as well as your will regularly. 

Another important question - What if you have loans to be paid off? 

Let’s say you took out a large loan to buy your own house, and have arranged for the installments to be paid over the next 20 years. Unfortunately, if your death happens before you can fulfill this repayment - your family will need to pay it off. 

In fact, your creditors and the bank will have the first right to your term insurance amount - and will receive their payout even before the money reaches your family. 

There’s a way around this - that works in the case that you’re male and want your wife to be the receiver of the claim money. Through a legal provision called the Married Women’s Property Act (or, MWP Act) - you can ensure that your wife will be the first recipient of your term insurance claim amount - before your creditors. 

The Married Women’s Property Act (MWP) provides the married woman and her children the right to receive a smooth and hassle-free claim settlement.

How can you add the MWP Act to your term insurance?

You can do this by adding a simple addendum to your term insurance application. 

But, remember - 

• You can only add the MWP Addendum at the time of buying the term insurance policy and never later
• You cannot remove the MWP Addendum later - even in case of a divorce. 

If you’re male and want to ensure the claim amount reaches your wife and children - we recommend that you buy the term insurance policy with the MWP Act. 

If you have any further questions related to term insurance, adding a nominee, or the MWP Act, you can post them on the Beshak Insurance Forum, and get responses from experts in 6-8 hours!