Why is it important to have a nomination in Banks, Post Office and Insurance?

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Nomination should essentially be done for any kind of investment being made either in a bank, post office, stock markets or an insurance company. The process is simple and requires only submission of nominee application by the applicant wherein he needs to specify the details of the nominee including his/her name, relationship with oneself, date of birth and address. The nomination document suffice as a formal legal document declaring the pattern of asset distribution in one's absence.

As nearly all the investments are primarily made in order to meet one's future financial obligations any unfortunate event such as the death of the investor or depositor should not hinder the normal course of discharge of financial duties. Such a process is simplified through nomination as then the claims with respect to the balance account with the banks or post office are processed as well as settled easily without the requirement of succession and other similar certificates. However, it is to be remembered that death certificate of the deceased depositor is to be furnished every time his assets are claimed.

Further, in case of life insurance policy, a policy holds no relevance unless a nomination is made. As, an individual purchases a life insurance policy to safeguard one's family financially in the event of his/her death, the nomination made entitles the nominee to receive the benefit of the policy upon the death of the life-insured. Conversely, in the absence of the nomination, the legal heir of the deceased would need to struggle life-long for receiving the claimed amount.

Thus, nomination serves to indicate the person who is legally authorised to receive the amount otherwise due to the depositor in the event of his death. However, benefits of the policy or any other investment can be further claimed by the legal heir depending on the succession law. The nominee is only a custodian and not an automatic legal heir.

Facts related to Nomination

1. Only one person can be nominated against one account. Similar is the case with life insurance policies where the policyholder can nominate only one person.

2. Nominee can be a close relative of the depositor or some one who is financially trustworthy.

3. Non-resident Indians can also be appointed as the nominee and in the event of death of the depositor the proceeds of his financial account are repatriated in the nominee's account post the approval of the RBI.

4. Likewise, regardless of residential status, in case of NRE and FCNR deposit accounts, nominee is not entitled to the funds on an automatic basis.

5. In a case, when nomination is not made for the financial investment, will of the deceases person stands out and the legal heir as per the will of the concern gets entitled to the benefits accruing from the said investment.

Consequently, for any of the investments either of movable or immovable nature nomination should be made without fail. The nomination made would confer the financial assets to the person of one's choice and would bar the proceeds of any of the financial account from remaining in suspicion account. An important point to make note is that nomination does not guarantees ownership of the financial asset.


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