Unclaimed Life Insurance Funds: A Growing Concern
In India, unclaimed amounts with life insurers have reached a staggering Rs 22,237 crore at the beginning of the fiscal year 2024. This issue has drawn attention from the Insurance Regulatory and Development Authority of India (Irdai), which has initiated a six-month drive from June to November 2023. The campaign successfully reduced unclaimed amounts by over Rs 1,018 crore. However, the problem persists, highlighting the need for better estate planning among policyholders, especially those who bequeath benefits to non-relatives. Insurers are now more cautious about registering nominees who are not immediate family members, which adds complexity to the situation.
The Importance of Estate Planning
Estate planning is crucial for anyone who holds a life insurance policy. Many policyholders often overlook this aspect, especially when nominating individuals who are not immediate family members. The lack of proper estate planning can lead to complications when it comes to claiming benefits after the policyholder’s death. Insurers are now urging policyholders to regularly update their contact, bank, and nominee details. They are also encouraged to conduct Know Your Customer (KYC) and Re-KYC processes to ensure that all information is accurate and up-to-date.
The challenge arises when nominees are non-traceable due to various reasons, such as changes in family dynamics or the nominee’s death. Sujeet Kothare, Executive Vice President of Marketing at Tata AIA, emphasizes that this is an industry-wide issue that needs to be addressed. The insurer is actively reaching out to nominees to keep them informed about policy details and benefits. They are even offering discounted HPV vaccinations to promote cancer prevention, showcasing a commitment to the health and well-being of their clients and nominees.
Challenges with Non-Relative Nominees
The practice of nominating non-relatives can create moral hazards. Kothare points out that while there are exceptions for those without immediate family members, having a non-relative as a nominee complicates matters. In such cases, creating a trust and nominating the trustee can be a viable solution. This approach ensures that the bequest is executed smoothly and according to the policyholder’s wishes.
Edelweiss Life explains that if a non-beneficial nominee is appointed, the legal heirs retain ownership of the funds. For example, if a policyholder appoints a girlfriend as a nominee, she can receive the money but must hand it over to the legal heirs, such as a spouse or children. This legal framework can create confusion, especially for individuals in same-sex relationships or those without immediate family members.
Insurers’ Recommendations and Policies
Life Insurance Corporation (LIC) has also weighed in on this issue. They advise policyholders to nominate immediate family members, stating that nominations in favor of strangers lack insurable interest and may involve moral hazards. This policy can create challenges for individuals in non-traditional family structures, such as same-sex couples or those without close relatives.
The need for clear guidelines and policies is evident. Insurers must balance the need for proper estate planning with the realities of modern family structures. As the industry grapples with these challenges, it is essential for policyholders to be proactive in their estate planning. Regularly updating nominee details and understanding the implications of their choices can help mitigate the risks associated with unclaimed life insurance funds.
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