Mr. Pawan, aged 40 Years purchased an Insurance Policy for the Sum Assured of ₹1 Crore from XYZ Company Limited. The proposal date was 22.02.2024 and has paid one year premium of ₹30,733/-. In the proposal form, he nomin

CS Professional · Insurance - Law & Practice · PYQS · June 2025
Mr. Pawan, aged 40 Years purchased an Insurance Policy for the Sum Assured of ₹1 Crore from XYZ Company Limited. The proposal date was 22.02.2024 and has paid one year premium of ₹30,733/-. In the proposal form, he nominated his second wife Ms. Aparna and minor son Mr. Abhiroop who was born to his first wife as beneficiaries of 50% share of each for policy benefits. As his son is minor, his second wife Ms. Aparna is considered as legal trustee/guardian for the minor son. His first wife Ms. Karuna passed away on 1-2-2021 with post-partum problems leaving behind a son. Since his first wife passed away in 2021, he has been using anti-depressant medicines to come out from his bereavement and also married Ms. Aparna on 20-12-2023 to take care of his two-year-old son Mr. Abhiroop. The usage of depressant medicines is not mentioned in the proposal form as he thought that was not a material fact. His business also got affected with his mental depression and to raise money for his business continuation he assigned this ₹1 Crore insurance policy to his creditor on 25.06.2024 against the loan of ₹30 lakhs. Within 7 months of the proposal date, he died on 28.08.2024. The cause of death was reported in the discharge form of deceased life assured as sudden cardiac arrest in the sleep due to atherosclerosis (hardening of the arteries). As Ms. Aparna is not biological mother to Abhiroop and father passed away, parents of Ms. Karuna the biological mother of Mr. Abhiroop approached the insurance company for the policy benefits in the name of minor son Mr. Abhiroop under the trustee of biological grandparents. As it is an early claim, the investigation on death of the insured is initiated and the insurance company could not prove that it is a suicide though they come acrossed the rumors of suicide from neighborhood due to his depressive mentality. But on investigation, it is identified that life assured had suppressed or concealed the material fact of using anti-depressant medicines. Research showing that antidepressants might contribute to atherosclerosis by affecting factors like blood pressure, platelet aggregation, inflammation and endothelial function within the blood vessels which may lead to heart failure. Insurer put on hold the claim based on the following issues: Suppression of material facts or breach of the condition of 'utmost good faith' from the life assured. Early claim with a suspicion of suicide. Litigation on Trustee/Guardian for the minor son. Part of Insurance policy benefits is assigned to creditor. One of the reasons mentioned by Insurance Company to put on hold the claim was that the Litigation on Trustee/Guardian for the minor son in the nomination form. What is nomination and why it is important to specify the beneficiaries in the nomination form? Explain your answer by quoting the relevant sections of Insurance Act, 1938.

Answer & Explanation:

Nomination refers to the process by which a policyholder designates one or more individuals to receive the benefits of the insurance policy upon the death of the insured. The importance of specifying beneficiaries in the nomination form includes ensuring that the intended recipients receive the policy benefits without legal disputes. Under life insurance policies, upon death of the life assured, the Sum Assured is required to be paid to the legal heirs of the deceased life assured. However, if there is a dispute between legal heirs, the benefits may not reach the intended beneficiaries on time. To avoid this, the facility of nomination is provided to the person who is taking the policy at the time of taking the policy, by filling the names of Nominees in the proposal form and his/her relationship to the Life Assured as per the Section 39 of the Insurance Act, 1938 . This section recognizes 2 types of Nominees: Beneficial Nominee. Collector Nominee. Provisions under Sections 39(7) & (8) of the Insurance Act, 1938: Section 39(7): This section clarifies that if a beneficial nominee dies after the death of the life assured but before receiving the death benefit, the legal heirs of the deceased beneficial nominee shall be entitled to the claim proceeds. This provision ensures that the benefits are not lost even if the nominated beneficiary is unable to collect them due to their own demise. Section 39(8): This section emphasizes the need for policyholders to appoint a guardian (appointee) when a minor is designated as a nominee. The appointee is responsible for receiving and managing the policy proceeds on behalf of the minor until they reach the age of majority. In this particular case, while Ms. Aparna, the legal wife of Mr. Pawan, is eligible to act as the trustee for her stepson, Mr. Abhiroop, who is a minor, the situation has become complicated. The biological grandparents of Mr. Abhiroop are contesting the claim, asserting their rights to the benefits on behalf of their grandson. This dispute highlights the importance of clear nominations and the potential for conflicts when the relationships between the insured, nominees, and legal heirs are complex.

Topics: Life Insurance

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic