The rights of insurance policy nominees require clarity

Legislative action is needed to prevent family disputes between policy nominees and legal heirs

- TANMAY PATNAIK

In the complex world of asset distribution, the rights of nominees, particularly in life insurance policies, have been a subject of ongoing legal debate. Traditionally, nominees have been regarded as trustees, holding the proceeds of an insurance policy temporarily for the rightful legal heirs. However, a significant shift occurred with the 2015 amendment to the Insurance Act, 1938, which granted beneficial rights to certain close family members, including parents, spouses and children nominated by a policyholder.

Despite this change in India's insurance law, the legal landscape surrounding nominee rights remains fraught with ambiguity, as highlighted by a recent Karnataka high court ruling that challenges the scope of these rights in the face of succession laws in the country. This ruling adds to growing uncertainty in this area of law, which continues to evolve as Indian courts interpret the relationship between nominees and legal heirs.

A new interpretation of nominee rights: On 20 February 2025, the Karnataka high court ruled that despite the amendment to Section 39 of the Insurance Act, nomination does not automatically override the rights of legal heirs under succession laws.

The case involved an individual who had taken life-insurance policies and nominated his mother as the beneficiary. After his marriage and the birth of his son, he did not update his nomination. Following his death in 2019, his widow and minor son filed a suit claiming their rightful share in the insurance proceeds as legal heirs under the Hindu Succession Act, 1956.