Who Really Gets Your Insurance Money? Nominees, Legal Heirs, And The Law

Naming a nominee ensures the insurance company has a designated person to whom they can legally discharge the claim proceeds, but it does not grant that person absolute ownership. “The nominee holds the money in trust for the legal heirs. Unless the nominee is also a legal heir or a "beneficiary nominee" under the Insurance Act, they are legally obligated to distribute the funds to the rightful successors according to the law of succession or the deceased's Will,” says B. Shravanth Shanker, managing partner, B. Shanker Advocates LLP.

Nominee Versus Legal Heir

Under Indian law, a nominee is a custodian authorized to receive the payout to prevent the insurer from holding onto the funds. “In contrast, a legal heir is the person entitled to own the assets under personal succession laws (like the Hindu Succession Act or Indian Succession Act),” says Shanker.

Historically, Indian courts have consistently held that a nominee is not the owner of insurance policy proceeds but merely a person authorized to receive the amount from the insurer. “This principle was firmly laid down by the Supreme Court in Sarbati Devi v. Usha Devi (1984), which held that a nomination under Section 39 of the Insurance Act, 1938, does not override the rights of legal heirs under succession law. The insurance proceeds, forming part of the deceased’s estate, must therefore be held by the nominee in trust for the legal heirs and distributed in accordance with applicable succession laws,” says Divya Alexander, advocate, D.M. Harish & Co.

In 2015, the Insurance Act was amended to introduce the concept of a “beneficial nominee” in Section 39(7). Under the amended provision, where the nominee is the policyholder’s spouse, parent, or child, the nominee is not merely entitled to receive the policy proceeds but also to retain them as the beneficial owner, unless it is established that the policyholder could not have validly conferred such a beneficial entitlement.

Legal Grey Zone Persists

“This amendment marked a significant shift in the legal position. However, judicial interpretation since then has not been uniform. Various High Courts have taken divergent views,” says Alexander.

In Mallela Manimala v. Mallela Lakshmi Padmavathi (Andhra Pradesh High Court, 2023), the wife was named as a beneficial nominee, and the court found no indication that the policyholder intended anything different. On that basis, it held she was entitled to the entire insurance amount.

That said, other High Courts have approached the issue more cautiously. In Arun Kumar Singh v. Jaya & Ors. (Madhya Pradesh High Court, 2022) and Neelavva v. Chandravva (Karnataka High Court, 2023), the courts pointed out that the 2015 amendment, by itself, does not automatically make a nominee the absolute owner of the policy proceeds.

Unless there is solid indication that the policyholder intended the nominee to receive it absolutely, the rights of other legal heirs can still be relevant.

More recently, the Allahabad High Court in Smt. Kusum v. Anand Kumar (2025) reaffirmed this position. The court observed that even a “beneficial nominee” under Section 39(7) cannot override the claims of other legal heirs outright. It emphasised that beneficial ownership has to be assessed based on the amended law and the facts of each case, often through civil proceedings where competing claims can be properly examined.

“Until the Supreme Court conclusively settles the issue, the cautious approach is to treat nomination primarily as a mechanism for receipt of policy proceeds rather than as conferring absolute ownership, unless supported by clear statutory language or unequivocal intention,” says Alexander.

Legislative clarification or a binding pronouncement from the Supreme Court is necessary to resolve the prevailing uncertainty. In the interim, careful estate planning remains the most reliable safeguard.