Who gets the insurance payout if policyholder and nominee die simultaneously? What the law says about claims

Recently, a couple lost their lives in a highway accident in Maharashtra, leaving their family in a legal tangle over financial matters, including insurance claims. Such events raise complex financial questions: what happens to an insurance policy if the policyholder and nominee die together? Who receives the payout?

It is a misconception that the insurance claim would lapse in such cases because legal heirs step in when the nominees are gone. According to experts, the payout is redirected to the legal heirs of the policyholder. “If the policyholder (account holder) and the nominee die, the insurance policy's death benefit will be paid to the policyholder's legal heirs. The nominee's role is just a custodian of money according to legal guidelines, and the actual payment distribution happens to legal heirs only,” clarified Surinder Bhagat, head-employee benefits, Prudent Insurance Brokers.

In such a situation, the insurer will ask for legal documents such as a succession certificate, a legal heir certificate, or a probated will to verify and establish the right claimants to the insurance payout.

Children are considered first-class heirs. Explaining how this plays out, Amit Chhabra, CBO, General Insurance at Policybazaar, explained, “In an accident, if both the policyholder and nominee die, the insurance company identifies eligible Class I heirs, mostly the children. When there is more than one heir, they are required to agree on how the claim amount should be settled. This agreement must be formalised through a declaration and supported by an indemnity bond before the payout can be processed.”

This ensures the money is not wrongly distributed and all rightful heirs are given equal opportunity to claim their share, provided they come forward with the proper documents.

Moreover, succession laws based on religion also apply. Who qualifies as a legal heir depends on the personal law applicable to the deceased. “It should be noted that the insurers follow the relevant succession laws, i.e., Hindu Succession Act, Muslim Personal Law, Indian Succession Act, or any others, depending on the religion and domicile of the deceased policyholder, to ascertain who the legal heirs are to an absent valid nominee,” said IBAI president Narendra Bharindwal.

Consider a case where the husband and wife, both policyholders who have nominated each other, die in the same accident. “In such a case, the insurance payout would likely go to their children, who are their legal heirs, and not to the husband's or wife's parents,” explained PolicyX’s Naval Goel. 

This dispels the common misconception that parents or siblings automatically become claimants in such cases. Children come first under Class-I heirs, unless otherwise specified in a will.

Why timely nomination and wills matter

Bharindwal stressed the importance of keeping nominations up-to-date and having a will in place. “This instance further reinforces the requirement of timely vetting of nominations and, if feasible, the making of a will for clarity in the dispersal of the insurance benefits and ease in claim settlement in such ill-fated conditions involving multiple deaths.”

Thus, if the policyholder and nominee die, the insurance company doesn’t keep the money. Instead, it is handed over to the legal heirs after a proper legal process. To avoid delays and confusion, it is crucial to have a valid nomination and, ideally, a will that clearly outlines who should get the proceeds.