Have you ever purchased a life insurance policy with the objective of daughter's marriage? If yes, what steps have you taken so that your daughter benefits from your decision? We discuss this issue based on LIC's ‘Marriage endowment policy', but the points raised here will be equally applicable to similar policies of other insurers as well.
MARRIAGE ENDOWMENT POLICY
Let us assume that the policy is taken for a term of twenty years, when the daughter is three years old. The father is the policyholder and risk on his life is covered. Daughter is the beneficiary. If all the premiums are paid, the policy results in a maturity claim, and it will be paid to the policyholder.
Suppose the life assured dies after two annual premiums are paid. No more premiums need be paid but maturity claim will be settled as if all premiums were paid and bonus on the policy will be paid for all the twenty years.
The special feature of this product is that on death of the father, a claim is not immediately paid, but will be paid on date of maturity (for use during daughter's marriage).
Nomination on a policy normally ends on maturity of the policy. Policy money belongs to the legal heirs of the life assured and not to the nominee.
Hence the best way to ensure payment of policy money to the beneficiary daughter is to assign the policy conditionally to her.
The next best option is to specify that the purpose of purchasing the policy is the daughter's marriage and that the money shall be paid to her in the event of death of the life assured. Here the daughter is the nominee.
EFFECTING NOMINATION
For such policies, an addendum under the signature of the proposer is advised to be submitted (along with the proposal) with the wording, “This policy has been taken out by me for the marriage of my female relative (name), who is my (daughter) and is dependant up on me for the necessaries of life and shall be considered as a policy earmarked for her marriage.”
And when the policy is issued, the insurer incorporates the following endorsement in the policy bond, “This policy has been earmarked by the assured for the marriage of his female relative (name), (daughter) and is dependant upon the assured for the necessaries of life.”
In the process, a trust is created by the life assured in favour of the beneficiary daughter and the insurer act as the trustee. Only in such cases the policy money will go to the beneficiary daughter.
In all other cases the policy money belongs to all the legal heirs. If the addendum is not submitted, the daughter will get only a share of the policy money like any other legal heir.
REMEDY FOR LOST OPPORTUNITY
Experience shows that no intermediary advises the proposer to submit the required addendum to the insurer.
In effect every marriage endowment policy sold on the promise of daughter's protection remains an ordinary policy.
Now what is the remedy for the lost opportunity? If subsequent to the issue of policy a life assured wants to earmark the policy for his daughter's marriage, he can give a written notice to the insurer. The policy shall also be submitted to the insurer for endorsing it.
(The writer is President, Society for Promotion of Legal and Insurance Awareness.)