A policyholder takes a term life insurance policy to ensure their family’s financial security in case something happens to them. After evaluating different providers, comparing coverage options and using a term insurance premium calculator to estimate costs, they make the final decision and purchase the policy. At this stage, they also name a nominee—the person who will receive the payout when the time comes.
But what if, despite all this planning, the nominee never files a claim? Does the insurer simply keep the money? Is there a deadline for claiming? What happens to the unclaimed amount? This blog breaks down these less-discussed but important aspects of term insurance claims.
Benefits of Claiming an Insurance Policy
Life insurance is designed to provide financial support when it’s needed the most. But what exactly happens when a claim is made? The benefits of a life insurance payout go beyond just receiving a lump sum. It can be the difference between financial stability and sudden hardship for the nominee. Whether it’s covering daily expenses, paying off outstanding loans or securing a child’s education, the payout serves as a financial cushion during a difficult time.
Many policies offer structured payouts, where the amount is disbursed in instalments instead of a one-time sum. This assists in managing long-term expenses without the risk of spending it all too quickly. Additionally, certain policies provide extra benefits if the policyholder had opted for riders like accidental death or critical illness coverage. However, to access these benefits, the claim process needs to be completed correctly and within the stipulated time. A well-planned policy is only useful if the claim is filed and settled as expected.
Nominee in Life Insurance
A nominee in a term life policy is a person entrusted with receiving the insurance payout after the policyholder’s passing. This ensures that the intended financial protection reaches the right hands. Being a nominee involves knowing the policy details, understanding the process and ensuring that the benefits are claimed when needed.
In most cases, the nominee is a close family member, such as a spouse, child or parent, but a policyholder can choose anyone they trust. If a nominee is unaware of their role or delays the claim, the payout can remain unclaimed for years, complicating financial matters for dependents. A nominee should not only be informed but also prepared—knowing where the policy documents are, understanding their rights and being aware of any additional steps required in case of disputes or legal formalities.
What Happens When Insurance Proceeds Aren’t Claimed?
A life insurance payout provides financial support, but what happens if no one claims it? Contrary to what some might assume, the money doesn’t just disappear. It sits with the insurance company until someone legally entitled to it steps forward. If the nominee doesn’t file a claim, the legal heirs can still claim the amount by proving their relationship with the policyholder—though this may require additional documentation, like a succession certificate.
If no one comes forward within the set period, the funds may be transferred to the state’s unclaimed property fund. Even at this stage, beneficiaries can recover it by following the set procedures. However, if no rightful claimant steps up, the money could eventually become part of the government’s general fund. In short, an unclaimed insurance policy doesn’t automatically pay itself out. Someone has to take responsibility or the financial security the policyholder planned for their loved ones might never reach them.
Why May Nominees Not Claim Insurance Money?
Not every life insurance policy payout happens smoothly. In some cases, nominees or legal heirs never file a claim, leaving the money unclaimed. But why does this happen?
One major reason is a simple lack of awareness—the nominee might not even know that a policy exists. If the policyholder didn’t communicate their financial plans or if the document details were lost, the claim may never be filed. In cases where the person aware of the policy has also passed away, there may be no one left who knows about it.
Emotional reasons also play a role. Some people struggle with the loss of a loved one. They may avoid financial matters as a way to delay the acceptance of reality. Others may feel intimidated by the claim process, fearing complex paperwork or dealing with the insurance company.
The Bottom Line
A life insurance policy is only useful if its benefits reach the right people. Assigning a nominee ensures that your financial planning serves its purpose. Keep your nominee informed, share policy details and update the nomination if circumstances change. If your nominee passes away or is no longer the right choice, revise it promptly. A little effort now can prevent complications later, making sure your loved ones receive the support you intended for them.
