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Report No. 190 Chapter VII Nomination 7.1.1 Section 39 of the Insurance Act, 1938 provides that the holder of a policy of life insurance may nominate one or more persons to whom the money secured by the policy shall be paid in the event of the death of the policyholder. A nomination shall get automatically cancelled as per section 39 (4) where a transfer or assignment of the policy has been made in terms of section 38 of the Act. As per the proviso to section 39 (4), where an assignment is made in favour of the insurer itself in consideration for a loan advanced by the insurer to the policyholder, the nomination will not be cancelled but the rights of the nominee will be effected only to the extent of the insurer's interest in the policy. Where the loan is repaid and the policy is reassigned to the policyholder, the nomination will remain valid. To illustrate, policyholder A is entitled to an amount of Rs.2 lakhs upon maturity of his life insurance policy. A borrows Rs.50,000/- from the insurance company and assigns the policy in its favour. In the event of A's death without repayment of the loan amount, the insurance company can retain only such amount as is payable to it and A's nominees are entitled to receive the balance amount payable under the policy. The Consultation Paper has pointed out that this provision is unclear as to the position where the assignee is not an insurer. The question posed was whether in such an event, the prepayment of the loan advanced by the assignee would automatically revive the nomination made by the policyholder. 7.1.2 Another area, which required clarification, was that of a beneficial nominee as distinguished from a collector nominee. Under section 38 (6) where a nominee survives the insured person, the policy money would be payable to such nominee survivor. The question then arises whether this payment to the nominee is to the exclusion of the legal representatives and heirs or even creditors who may have a legitimate claim against the estate of the deceased of which the money payable on maturity of the life insurance policy forms part.    |
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