While buying a life insurance in India, you must name a beneficiary who can legally claim the sum assured in your absence. You might think that naming a beneficiary will be an easy process. Though the selection of life insurance beneficiary is simple, you need to take care of various financial, legal and tax obligations to make it work for you. If you don’t add a beneficiary properly for your life insurance, it can cost you and your family a lot.
Kind of Beneficiaries You Can Add
You can add two types of life insurance beneficiaries:
- Primary Life Insurance Beneficiary: This is the person whom you can name in your policy as a beneficiary who will be entitled to receive the proceeds of sum assured in case of death of the insured person. But if the primary beneficiary dies before the insured person, then no amount can be claimed in his name.
- Secondary or Contingent Life Insurance Beneficiary: This is the person you can add to your life insurance policy who can claim the sum assured in case of death of the primary beneficiary. The catch in this rule is that a contingent beneficiary will only be entitled to receive the sum, if the primary beneficiary dies before the insured person. Then after the death of the insured person, the secondary beneficiary can claim the money.
It is always advisable to add both these beneficiary accounts to your term life insurance policy so that your money doesn’t go in vain.
Whom to Choose As Beneficiaries?
It is solely a personal choice whom you select as your beneficiary while buying term plan in India. The choices include:
- Your Family Members: You can choose your loved ones who are financially dependent on you at this moment as both primary and secondary beneficiaries. He or she can be your better half, children, siblings and any other person who is related to you in your family.
- The Executor of Estate: If you are thinking of adding an estate to your beneficiary list, you need to add the administrator or the executor of the estate. There are certain tax regulations for adding beneficiaries in the name of the estate which you need to discuss with your chartered accountant.
- Legal Parent: If you select a minor as your life insurance beneficiary, you need to add a legal guardian as well. The minor will only be entitled to receive the sum assured when he/she attains an age of 18. Sum assured, in any case, won’t be paid to the minor, if there is no legally appointed guardian by the court order.
- Trusts: If you have your own trust or any other trust whom you want to give the benefit of your life insurance, the beneficiary selected should be the trustee who can claim the sum assured.
- Charitable Trusts: You can also add charities as your beneficiary who can claim the sum assured in case of your death.
At Edelweiss, you can buy life insurance online like ‘MyLife+ Plan’ which allows you to choose the payout options you prefer. You will be covered until the age of 80 years under this plan and then your beneficiaries can claim the settlement amount as well.
Neha Panchal - Financial Content Writer
Neha used to be an Engineer by Profession and Writer by passion, which is until she started pursuing full-time writing. She's presently working as a Financial Content Writer, with a keen interest in all things related to the Insurance Sector.