Finance Desk – In a significant judgment, the Lucknow bench of the Allahabad High Court has ruled that being a nominee on an insurance policy does not give ownership rights over the insurance money. The court clarified that the nominee is merely a custodian, and the actual rights over the money lie with the legal heirs, as per succession laws.
Background of the Case
Petitioner: Kusum, a resident of Unnao, Uttar Pradesh
Subject: Dispute over life insurance proceeds of her late daughter, Ranjeeta
Details:
Kusum had taken 15 life insurance policies in her daughter’s name before she got married.
Ranjeeta passed away in 2011, leaving behind an 11-month-old daughter.
Kusum, named as the nominee, claimed full ownership of the insurance money.
This was challenged by Ranjeeta’s husband and daughter, who won a favorable ruling from the civil court.
The Unnao district judge ordered Kusum to deposit the money in the name of her granddaughter as an FDR till she turns 18.
Court’s Verdict
Justice Pankaj Bhatia dismissed Kusum’s petition, ruling:
Nominee ≠ Owner: Being a nominee, even under the amended Section 39(7) of the Insurance Act, does not mean the nominee inherits the money.
Succession Laws Prevail: Rights to the policy money must be determined under the Hindu Succession Act or other applicable personal succession laws.
Insurance Act’s Role: The Insurance Act was not designed to decide inheritance or succession rights.
The court emphasized that interpreting a nominee as a beneficial owner to exclude legal heirs would lead to an absurd result, which was never the intention of the 2015 amendment to the Insurance Act.
Due to conflicting judgments on this issue from different courts, the High Court suggested that the matter should now be considered by the Supreme Court for final clarity.
What It Means for Policyholders
Naming a nominee in your insurance policy ensures a smooth claim process, but it does not guarantee ownership of the money.
The final right to the funds lies with the legal heirs, unless a will or legal declaration says otherwise.
It’s important to align your nomination with your succession planning to avoid disputes.
