In the absence of a will, the distribution of insurance proceeds will be governed by the relevant succession laws applicable to the deceased policyholder (such as the Hindu Succession Act, 1956, or other personal laws)
As per a recent Karnataka High Court ruling, one thing, in the context of Section 39 of the Insurance Act, 1938, is made out clear that nomination shall not override the rights of legal heirs as available under the succession laws. Therefore, in addition to nomination in a policy document, a policy holder should also clearly state regarding the divestment of policy benefits in his/ her Will/ succession document.
“Yes, in the absence of a will, the distribution of insurance proceeds will be governed by the relevant succession laws applicable to the deceased policyholder (such as the Hindu Succession Act, 1956, or other personal laws),” says Lokesh Dhyani, Partner, Aekom Legal.
Does This Apply Only To A Life Insurance Policy
“This ruling primarily applies to life insurance as it interprets Section 39 of the Insurance Act, 1938, which governs life insurance nominations. “Since life insurance payouts create an estate-like benefit, they are subject to succession laws if legal heirs claim a share. In contrast, health and motor insurance are indemnity based, where nominations mainly facilitate claim processing, not ownership,” says Raadhika Chawla, advocate, Delhi High Court.
However, this is open to interpretation. “This principle applies uniformly across all insurance policies—life, health, motor, etc.—as succession laws are agnostic to the nature of the insured asset. Policyholders must recognize that nomination acts as a procedural convenience, whereas a will ensures the intended distribution of their estate, including insurance proceeds, in accordance with their wishes,” says Ritesh Khare, advocate and Managing Partner, Magnus Legal Services.
What You Should Do
“Policyholders should create a Will alongside their insurance nomination to avoid disputes as a nominee receives the payout but does not automatically become the absolute owner if legal heirs claim a share as the devolution of one’s property is governed by the respective personal laws,” says Chawla.
Agrees Dhyani, “To avoid the disputes and ensure that the intended beneficiary receives the payout, policyholders should execute a Will explicitly naming the person who shall be the beneficiary of policy.”
Further, in the absence of a Will, the proceeds are distributed as per succession laws, such as the Hindu Succession Act 1956, Indian Succession Act, 1925 or Muslim personal law, which may override the nomination.