Even as integration of advanced technology into the financial system brought revolution in the banking operations, it’s the COVID-19 pandemic which has forced the banks and financial institutions to explore the advantages of technology to its maximum.
We observed an abrupt shift in the way of transactions happening now as more and more technology driven solutions are emerging on the platform which automatically promotes precautionary measures outlined for fight against COVID infection.
There should be no denying the fact that among other things banking operations will see major changes in post-COVID era which will redefine banker-customer relationship.
This time we would not go into the details of COVID-induced changes expected in the banking operations, but will be deliberating upon an important issue which remains there despite technology-driven sweeping changes in the system.
In fact there are certain systems and procedures in the banking system which have not become stale or redundant and even advanced technology has not substituted them.
To be specific, nomination facility is one such system which always makes a sense for bank accountholders to avail. But if we look at the given scenario, availing nomination facility has mostly been overlooked and even banks too have been lazy to promote this facility among their customers.
Despite being free of cost, nomination facility is among one of the least used facilities offered by banks to their accountholders. Normally, accountholders either don’t believe it is important enough to fill up the additional two bits of information required in the already account opening application form, or they postpone it because they don’t want to take the decision now.
In both ways it is a mistake. Actually, it’s a means for the accountholders to protect the interests of their families who will stand to benefit from the funds left in accounts in the event of death of accountholder. Otherwise, they are likely to be tied up in lengthy legal procedures till legal heirs are able to establish their claim on the funds left by the accountholders.
Precisely, in the present circumstances, nomination facility is an ideal tool to mitigate hardships in settlement of claims in the event of death of a bank account holder. It simplifies the procedure for settlement of claims of deceased depositors as the banks get a valid discharge by making payment as per the balance outstanding in a depositor’s account at the time of their death.
What is nomination facility?
Nomination is an instruction that an accountholder gives to the bank to record the name of the person entitled to receive the amount of money left in his/her account in the event of death of the accountholder. If a depositor opts for nomination facility for his/her deposit, it will be very easy for legal heirs to claim the deposit amount in the event of the unfortunate death of the depositor.
However, if the depositor dies without any nomination for the deposit, the legal heirs will have to either bring a succession certificate from a court or claim the money from the bank through a lengthy, expensive and cumbersome process. So, it’s in the interest of the depositor to appoint a nominee.
Here some clarifications regarding provisions in nomination facility are also important. The facility is intended only for individuals including a sole proprietary concern and there cannot be more than one nominee in respect of single / joint deposit account.
Variation/cancellation of a subsisting nomination by all the surviving depositor(s) acting together may be allowed by the Banks. This is also applicable to deposits having operating instructions “Either or Survivor”. It may also be noted that in the case of a joint deposit account the nominee’s right arises only after the death of all the depositors.
By giving operational mandates like “Either or Survivor” or “Anyone or Survivors” or “Former or Survivor” or “Latter or Survivor” etc will permit the surviving account holder(s) to have unimpeded access to the credit balance in the account for withdrawal if one of the co-account holders dies. It has to be kept in mind that payment to survivor(s) can be made in the normal course subject to the only rider that there is no order from a competent court restraining the bank from making such payment.
Here, it is worth mentioning that availing nomination facility is not mandatory.
What happens in absence of a nomination?
When you nominate, you make it easy for your dependents to have access to the funds left behind by you. They just have to establish your death by providing a death certificate and provide proof of their identity and address as the nominee and the bank will transmit the amount to the nominee. In the absence of nomination, apart from establishing death, the person making the claim also has to establish the right to receive the proceeds in the account of the deceased. This includes providing a copy of the Will or succession certificate, a no-objection certificate from the other heirs and an indemnity protecting the investment provider against claims by others. The entire procedure may take a long time to complete. A nomination makes the process and documentation simpler since you have identified the beneficiary in your lifetime.
What about nomination facility in insurance policies?
First let’s understand the fact that the whole purpose of buying insurance is to ensure that your loved ones face the minimum possible hardship if something unfortunate happens to you. Therefore, the purpose of buying the policy is defeated if you provide wrong or incomplete information. For instance, the policyholder doesn’t avail the nomination facility and doesn’t assign a nominee. In the event of his death, the benefit of the policy would not go to his legal heirs so easily. They have to follow a cumbersome process of furnishing a succession certificate or the legal certification of the validity of Will, if any. So at the time of buying an insurance policy, it’s of utmost importance to nominate someone to whom the proceeds would go if you are no longer around.
It’s worth mentioning here that choosing the nominee could be most crucial aspect. Insurance experts say that it’s advisable to choose a nominee in such a way that there’s least possible chance of a contest over the insurance proceeds. A nominee should be someone who has insurable interest in the life of the assured, say, a husband or a wife. As a part of the risk assessment process, insurers may deny a policy if the relationship between them doesn’t have any insurable interest. Insurance is a long-term contract and nominees can be changed over the policy term. More than one individual, can be appointed as nominees, but the policyholder needs to specify the percentage share of each nominee in the payout.
Can a minor be appointed nominee?
There’s no harm in keeping minor as a nominee. But it would be better to appoint a major person as a nominee because in case of a minor, you need to appoint an appointee too. But if you have considered it important to nominate a minor, then, you should ensure to provide complete details of the appointee, including his or her full name, complete address and relationship to the nominee. Let it be clear that the appointee loses his status when the nominee turns 18.
Can an accountholder cancel nomination?
Yes. You can also cancel a nomination at any time by informing the bank of your decision. You can also change the nomination. The existing nomination is then deemed as cancelled.
What is the legal status of nominee among legal heirs?
It should be clear that nomination is introduced solely for the purpose of simplifying the procedure for settlement of claims of deceased policyholder or the depositor and nomination facility does not take away the rights of legal heirs on the estate of the deceased. The nominee would be receiving the amount as a trustee of the legal heirs. In case the nominee refuses this right of legal heirs, the legal heirs can claim the money from nominee(s) through a court settlement.