Insurance is an instrument advised as a first purchase in your financial planning exercise. And against it a nominee is specified who happens to be a person with dependence on the policyholder, meaning to say policyholder's demise causes financial implications on the nominee.
Further, basis the instrument type, rules per se nomination are different, here we will have an elaborate discussion on rules as per insurance.
In the insurance industry, there are classes of nominees, in the first class, there is mother, wife, children while in the second category there falls husband and father. Siblings are classified in the third category. And in a case, if you happen to assign some other person as a nominee other than the classes specified above in your insurance policy, he or she may or not be the beneficiary in case of any untoward incident.
In an ideal case, an individual who has insurable interest on the insured person's life should be a nominee.
Duties of a nominee
Nominee in the insured policy is only a custodian or trustee who is appointed such that the proceeds are provided safely to the person close in link to the insured person. However, legal heirs are the ultimate and final beneficiary. So, in a case when the legal heir happens to be a different person then only he is the caretaker of the insured funds' received as policy proceeds as death benefit.
If in a case, you do not have any legal heir, it is better not to buy out an insurance policy but even if you happen to have it then you need to have a will in place nominating the legal heir or assigning the policy to the person concerned.
Why nomination is integral in insurance and other investments?
With no nomination, it will be a difficult process to get the claim amount, as you first need to prove that you are a legal heir to the insured person who has just met some unforeseen event. And if there is some appointed nominee, then insurance money will be first taken over by the nominee to be safely then transferred to the legal heir of the person concerned.