Unclaimed Wealth in Life Insurance

MUMBAI: At the beginning of FY24, life insurers were sitting on a staggering Rs 22,237 crore of unclaimed amounts. A special six-month initiative from June to November 2023 managed to reduce this figure by over Rs 1,018 crore, as reported by Irdai. This effort underscores the importance for policyholders to engage in thorough estate planning, especially when bequeathing benefits to non-relatives. Insurers remain wary of registering nominees who are not immediate family members.

Challenges and Solutions

Insurance companies have been instructed to regularly update contact, bank, and nominee details, conduct KYC and Re-KYC, utilize credit bureaus and media to locate consumers, and hold agents responsible for providing accurate information. However, unclaimed funds often result from nominees being untraceable due to unawareness, changes in family dynamics, or the nominee's demise.

"This is a problem that needs to be solved as an industry," stated Sujeet Kothare, executive VP (marketing) at Tata AIA. The insurer is proactively reaching out to nominees to keep them informed about policy details, benefits, and any changes throughout the policy term. Additionally, it is offering discounted HPV vaccinations to nominees to encourage cancer prevention. "The Tatas have historically taken a stand against cancer," Kothare added.

Legal Complexities and Recommendations

Kothare highlighted the difficulties when policyholders lack immediate family members or choose non-relatives as nominees. "Having a non-relative as a nominee creates a moral hazard, but there are exceptions allowed when there are no blood relatives," he explained. He suggested establishing a trust and nominating the trustee to ensure the seamless execution of such bequests.

Edelweiss Life explained in a blog that appointing a non-beneficial nominee means legal heirs will retain ownership of the funds. For instance, if someone appoints their girlfriend as a nominee, she can receive the money but must hand it over to the policyholder's legal heirs, such as a spouse or children. While individuals in same-sex relationships can nominate their partners, this does not grant them ownership of the funds.

LIC has also advised policyholders to nominate immediate family members, emphasizing that "nomination in favour of a stranger cannot be made as there is no insurable interest, and moral hazard may be involved." This stance presents challenges for individuals in same-sex relationships or those without immediate family members.