What happens to insurance policies if the policyholder dies?

Insurance plans cover a wide variety of financial risks that you may face and compensate for the financial loss you may incur. You buy a variety of insurance policies that are meant to take advantage of a wider range of risk to face potential risks. Life insurance, health insurance and motor insurance plans are the most basic and important coverage required for financial security. But what happens under these schemes when the policyholder dies?

Each type of plan affects the policyholder’s death differently. So, let’s assess the plans independently for a clear picture.

life insurance policy

Life insurance plans cover the risk of premature death. Under these schemes, the policyholder and the insured can be two different persons. For example, if you buy a life insurance policy on your life and you pay the premium, then you will be a policy holder as well as a life insured. However, if you buy a life insurance policy on the life of your wife or children, you will be the policy holder, but your wife and / or children will be life insured.

If the life insurance holder dies, the life insurance plan pays the death benefit. If the insured and the policy holder are the same person, the death benefit is paid on the death of the policyholder and the plan is terminated. However, if the life insured and the policy holder are separate individuals and the policyholder dies, the insurance policy will not be affected. The policy will continue till the insured is alive and the premium payable under the plan to receive full benefits must be paid. If the life insured dies, the plan will terminate the death benefit.

Let us understand by an example –

Suppose Mr. Verma buys three life insurance policies –

  • Policy 1 for yourself
  • Policy 2 for his wife
  • Policy 3 for his child Rahul

When the policy holder Mr. Verma dies, what will happen here –

Policy Statement Policy holder Life insurance Benefit payable
Policy 1 Mr. Verma Mr. Verma Death benefit will be paid and the policy will be terminated
Policy 2 Mr. Verma Mrs. Verma No effect on policy. This policy will continue after Mrs Verma is alive. Premium must be paid for full coverage
Policy 3 Mr. Verma Rahul No effect on policy. This policy will continue since Rahul is alive. Premium must be paid for full coverage. If it is a child plan, the premium will be waived and the scheme will remain unaffected

If death benefit is payable on the death of the policyholder, the benefit will be paid to the appointed nominee, beneficiary or legal heir of the insured.

Health Insurance Plan

Health insurance plans cover medical expenses if the insured is hospitalized. He also has the concept of policyholder and insured members. If you buy the policy for yourself, you will be the insured and the policy holder. If, however, you purchase a family floater plan or a senior citizen policy for your dependent parents, you will be a policyholder while your family members are covered under the plan.

Whether you are insured or not, if you die, no benefit will be given by the health insurance policy as the death is not covered under such plans. However, if the policyholder dies during treatment or after making a claim under the health plan, the claim process will be controlled by the nominee. There will be no problem in case of cashless claims as the insurance company will settle the medical bills directly with the hospital. However, for reimbursement claims, the nominee must complete the formalities of the claim and the claim amount will be refunded to the nominee’s account.

If, after the death of the policyholder, the spouses want to continue the family floater policy, they can submit a written request to the insurance company to change the policyholder at the time of renewal. The policyholder’s death certificate must be submitted along with the original policy document for change. The insurance company will recalculate the premium for the family and renew the family floater policy with the spouse acting as the policyholder.

Motor insurance scheme

Under motor insurance plans, since the vehicle is insured in case of death of the policyholder, no claim is payable. However, the death of the policyholder results in a change in ownership of the vehicle as well as the policy. To do this, the legal heir must, first, obtain ownership of the converted vehicle at a local RTO. An application must be made to the RTO for a change in ownership of the vehicle. Such a change will require the applicable RTO form, original RC book, policyholder’s death certificate, succession certificate and legal heir’s identity proof. Once the RC book is updated with the name of the legal heir as the new owner, the insurance policy can also be transferred. The legal heir should inform the insurance company and present the original insurance document, updated RC book, death certificate of the policyholder, succession certificate and identity proof so that the motor insurance policy can be transferred in his name. The insurance company will provide for the needy and the legal heir will become the new policyholder.

Even though the vehicle is sold after the death of the policyholder, the insurance policy and RC book must be updated with the legal heir’s name to complete the sale. The legal heir will be allowed to sell the vehicle and transfer the ownership of the vehicle as well as his insurance policy to the new buyer later.

You should understand the impact of the death of the policyholder under these common and important insurance plans. If you are the policy holder of your policies, educate your family on how they can claim the benefits of the policy in case of your unfortunate demise.

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