Effective Ways To Utilise Your Life Insurance Claim amount as a Nominee

Losing a loved one is emotionally overwhelming, and amidst the grief, managing the financial aspects can be equally challenging. If you’ve received a life insurance claim amount as a nominee, it’s important to handle it with care and clarity. Being the beneficiary or nominee of a life insurance benefit can be a significant yet often, overwhelming responsibility. You may be required to take care of some other dependents after the passing of the life assured. At the same time, a life insurance nominee may also have to take care of any liabilities left behind and ensure that the money is put to good use for a secure future. This payout is meant to provide you with financial stability, but using it wisely can ensure long-term security and peace of mind. With the right planning and by being in accordance with the life insurance nominee rules, you can ensure to make the best of what your loved one has left for you.

Utilising the Death Benefit Amount

As a nominee designated in a life insurance policy, you should have at least some idea of how to put the Life insurance claim amount to best use. Here are a few ways to manage any amount received as part of life insurance benefits.

Pause before making big financial decisions


Grief can cloud judgment; give yourself time. Park the money in a liquid fund or fixed deposit temporarily and avoid impulsive spending or investing.

Clear High-interest debts


Ideally, as a nominee in a life insurance policy, prioritize credit card dues, personal loans or high EMI.

Reducing liabilities = reducing financial stress.

Avail of tax benefits**

• If you are a taxpayer in India under the old tax regime, you may be able to claim exemptions on the death benefit received from a life insurance plan. 
• Under Section 10(10D) of the Income Tax Act, the death benefit received is exempt from tax obligations.
• It includes term life insurance policies, endowment plans, ULIPs, and more.
• Additionally, there is no maximum exemption limit on the death benefit received, subject to relevant terms and conditions.
• You can learn about these regulations or consult your financial advisor regarding the same.
Get life insurance

If the life assured has named you as the life insurance nominee with the responsibility of the death benefit, they may also need you to take care of other dependent family members. For instance, if the life assured has named the spouse as the sole nominee, they may expect them to take the responsibility of raising their children as well. To shield the child from any unforeseen or unfortunate circumstance, it may be ideal for the surviving spouse to get a life cover.
Depending on your needs, you can choose to utilise the death benefit value according to the different purposes served by different policy types:
• Term Insurance – To avail of financial security in the future
• Savings Plan – To steadily build a corpus over time
• ULIP – To create wealth while also availing of life cover
• Retirement Plan – To set in place a future source of income
• Child Plan – To secure the future of your children
Create savings and investment


It is often advised to get a sum assured amount at least 10 times the value of the annual income of the life assured, while also considering any liabilities. If such is the case, you will be usually left with a significant amount after taking care of urgent expenses and debts. To lay the foundation of financial security in the future, it is ideal to use it to create savings and investments.

Considering Different Investment Options

There are a number of investment instruments available to nominees of an insurance policy. If you have to invest the benefit amount received from life insurance, in full or in part, you need to first consider your needs and future plans. Take into account your long-term and short-term goals and only then opt for any investment opportunities.

The options can be divided broadly into two categories – fixed-return investments and market-linked returns. Let’s look at options under each of these categories.

Fixed Return Investments

• Fixed Deposits (FDs)
  These are traditional savings options offering relatively higher returns than savings accounts, but mostly not as high as market-linked options. You can choose to create an FD if you are looking for highly liquid low-risk instruments.
• National Savings Certificate
  The National Savings Certificate (NSC) is a government-backed fixed-income investment scheme in India, primarily aimed at encouraging small savings. Available at post offices, NSC offers a secure and low-risk investment option with a fixed interest rate, compounded annually. It has a maturity period of five years and is considered ideal for conservative investors seeking a safe and tax-efficient way to grow their savings over time.
• Public Provident Fund
  It is a popular long-term savings scheme in India, offering a combination of tax benefits and guaranteed returns. It has a tenure of 15 years and allows for partial withdrawals after the 7^th year. With an attractive interest rate set by the government and the ability to extend the tenure in blocks of 5 years, PPF can be a reliable choice for building a retirement corpus.
• Government Bonds
  They are debt securities issued by the government to finance its spending needs. Government bonds offer fixed interest payments at regular intervals, making them an attractive option for conservative investors seeking steady income. The maturity period for these bonds can vary, ranging from short-term (less than one year) to long-term (up to 30 years or more).
• National Pension Scheme
  Also known as NPS, the National Pension Scheme is a government-sponsored retirement savings scheme in India. Open to all Indian citizens, NPS allows subscribers to contribute regularly to a pension account during their working life. Upon retirement, a portion of the corpus can be withdrawn as a lump sum, while the remaining amount is used to purchase an annuity, providing a steady income.
• Tax-Saving Bonds
  They are typically issued by government-backed entities, making them a secure investment option. The key advantage of Tax-Saving Bonds is that the amount invested, up to a specified limit, is deductible from taxable income, reducing the overall tax liability. These bonds usually come with a lock-in period, ensuring long-term investment.
Market-linked Returns


 

• Mutual Funds
  There are a few ways you can put your money into mutual funds. Some of these involve SIPs and ELSS. While these tend to offer high returns, they also come with risk. Ensure to understand the risk involved and know how to manage a mutual fund investment.
• ULIPs
  Unit-linked insurance plans, or ULIPs, are a way for nominees to put their money into insurance and investment with a single plan. ULIPs offer a death benefit as well as maturity returns, so you may be able to secure your future in a more complete manner. Some plans may also offer partial withdrawal benefits, so that you may access them in case of a financial emergency.
• Exchange-Traded Funds (ETFs)
  Exchange-Traded Funds (ETFs) are investment funds traded on stock exchanges, similar to stocks. They typically track an index, commodity, or a basket of assets, offering investors a way to gain diversified exposure to a particular market segment. ETFs are known for their low expense ratios and flexibility, as they can be bought and sold throughout the trading day at market prices.
• Index Funds
  They are a type of mutual fund or ETF that aims to replicate the performance of a specific market index, such as the Nifty 50 or S&P 500. Since they are passively managed, index funds incur lower costs when compared to actively managed funds. Ideal for long-term investment, index funds offer a simple, low-risk way to diversify a portfolio.
• Equity Investment in Stocks

  It involves purchasing shares of a company, giving the investor partial ownership. This type of investment offers the potential for high returns through capital appreciation and dividends. It also comes with higher risk when compared to fixed-income securities. The value of stocks can fluctuate significantly based on market conditions, company performance, and economic factors.

  Life insurance claim amount is not the type of wealth inheritance one looks forward to. It is a backup set in place for financial help after the passing of a loved one. It is also one of the ways to honour their memory by valuing what they strived to provide for you and leave behind for you. With the inputs on financial advice shared above, make the best use of the nomination feature of a life insurance policy, utilising the sum assured received to fulfil your responsibilities and obligations and live a secure life.