Who gets the insurance payout—nominee or legal heirs?

Mr. A took a prudent step in his twenties—he bought a term life insurance policy and named his mother as the nominee. Years later, he got married and had a child but never updated his nomination. When he passed away unexpectedly, a critical question arose: Who has the rightful claim to the insurance payout—his mother, whom he nominated, or his wife and child, who share legal heirship with her?

This dilemma stems from the intersection of insurance laws and succession laws, creating a legal gray area.

The Insurance Laws (Amendment) Act, 2015, introduced the concept of a «beneficial nominee,» granting immediate family members—spouse, children, or parents—full rights to the policy proceeds. However, succession laws treat a nominee as merely a custodian, requiring them to distribute the payout among all legal heirs.

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Conflicting court rulings have only deepened the uncertainty.

“Prior to the 2015 amendment, a nominee was only a custodian of the proceeds, and legal heirs could claim the money. The amendment clarified that ‘beneficial nominees' will have full right to the amount," said Sameer Yogishwar, chief operating officer, HDFC Life.

Yogishwar added that if a beneficial nominee passes away after the insured but before the claim is disbursed, their legal heirs or the holders of their succession certificate become entitled to the payout.

While the amendment was intended to simplify claims, its interpretation remains contested.

The Karnataka High Court recently ruled that insurance policy nominations cannot override legal heirs’ rights under succession laws. This means that if legal heirs assert their claim, a nominee cannot demand the