In insurance law, a nominee is the person or entity chosen by a policyholder to receive the policy’s proceeds upon the insured’s death. Unlike in banking law, insurance nominee has the right to own the amount he receives under the life insurance law.
Nominee v. Legal Heir
Historically, a nominee was viewed merely as a trustee or “collector” of the money of the deceased person. A nominee’s role was to receive the funds from the insurer and distribute them to the rightful legal heirs, such as a spouse, children, or parents, according to succession laws.
The Rise of the “Beneficial Nominee”
The Insurance Laws (Amendment) Act, 2015, introduced the concept of the Beneficial Nominee.
Under this provision, if a nominee is an immediate family member—specifically a spouse, child, or parent—they are considered the absolute owner of the proceeds. This status as Beneficial Nominee allows them to keep the funds as their own, overriding the claims of other legal heirs.
Categories of Nominees
| Nominee Type | Description |
| Beneficial Nominee | Immediate family (spouse, parents, or children) who have the right to both receive and own the proceeds. |
| Minor Nominee | Children under 18. A guardian (appointee) must be named to manage the funds until the child reaches adulthood. |
| Contingent Nominee | A backup nominee who receives the benefit only if the primary nominee passes away before the policyholder. |
| Non-family Nominee | Friends or distant relatives. They typically act as custodians and may face legal challenges from rightful heirs. |
Legal Provisions and Procedures
The nomination process is primarily governed by Section 39 of the Insurance Act, 1938.
A policyholder can change or cancel a nominee at any time before the policy matures via a policy endorsement. One may nominate several individuals and specify the exact percentage share for each.
If the ownership of the policy is transferred to a third party, such as a bank for a loan, the nomination is automatically cancelled, unless the security is specifically made.
However, Section 39 of the Insurance Act does not apply to policies governed by Section 6 of the Married Women’s Property Act, 1874.
Case Laws that Endorse the View in the Amendment
Despite the 2015 amendment to the Insurance Act, Indian courts do not have consistency regarding the rights of a nominee.
However, several recent High Court judgments have clarified that certain nominees are now “beneficial nominees” rather than mere collectors of funds for legal heirs.
Rajasthan High Court: Ramgopal v. General Public (2019)
In its order dated April 5, 2019, the Rajasthan High Court observed that the 2015 amendment to Section 39 of the Insurance Act fundamentally changed the status of a nominee. The Court held that, by virtue of Section 39(10), the nominee alone is entitled to receive the insurance proceeds upon the death of the insured. This rule applies to all life insurance policies maturing after the commencement of the amended Act.
Delhi High Court: Shweta Singh Huria v. Santosh Huria (2021)
The Delhi High Court further solidified this position, ruling that the amended Section 39 grants a specific right to nominees listed under sub-sections (7) and (8). These nominees receive the sum assured as beneficiaries, effectively ending the old doctrine where a nominee acted merely as an “agent” or “trustee” for the legal heirs of the policyholder.
Andhra Pradesh High Court: Mallela Manimala v. Mallela Lakshmi Padmavathi (2023)
In a more recent judgment, the Andhra Pradesh High Court upheld the principle that a “beneficial nominee” is entitled to the insurance amount for their own beneficial enjoyment. The Court clarified that this right exists to the exclusion of other legal heirs, provided the nominee falls within the categories specified in the amended Act.
Amended Law Differs from Old Law
Under the old law, a nominee was merely a “receiver” who held the money in trust for the legal heirs. The 2015 Amendment to Section 39 changed this for specific close relatives.
To qualify as a Beneficial Nominee under Section 39 (7) and (8), the nominee must be: Parents, Spouse, or Children. If any of these individuals are named as nominees, they are no longer just “agents.” They are now the absolute owners of the insurance proceeds. That means other legal heirs (like siblings or distant relatives) cannot claim a share of that money unless there is a specific written agreement to the contrary.
In conclusion
If you have named your spouse, child, or parent as your nominee, the law now ensures the money goes directly to them for their own use. This prevents long-drawn-out succession disputes over life insurance policies, provided the policy matured after the 2015 amendment.
