The Nomination Conundrum in Life Insurance: Legal Status, Conflicting Judgments & the Path Ahead

When purchasing a life insurance policy, most policyholders diligently fill in the name of a nominee—often a spouse, child, or parent—believing that this ensures a smooth transfer of benefits upon their death. However, the legal effect of nomination under Indian law is far from settled, and in many cases, it gives rise to disputes rather than certainty.

Despite amendments to the Insurance Act, 1938, the core question persists:

🔍 Does a nominee automatically become the owner of the policy proceeds, or is the nominee merely a trustee who must pass the proceeds to legal heirs under succession laws?

⚖️ Legal Background: Section 39 and the 2015 Amendment

Section 39 of the Insurance Act allows a policyholder to nominate a person to receive the policy proceeds. Prior to 2015, courts consistently held that a nominee is only a custodian of the insurance money—a temporary recipient who must ultimately hand over the proceeds to the legal heirs as per applicable succession laws.

This position was reaffirmed by the Supreme Court in Sarbati Devi v. Usha Devi (1984), which held that a nominee does not have any beneficial interest in the policy amount.

In 2015, to bring clarity and reduce litigation, Parliament introduced Section 39(7), which created the concept of a “beneficial nominee”. This provision allows a policyholder to nominate close family members (spouse, children, parents) and states that such nominees “shall be beneficially entitled” to the policy amount—implying that they need not share the money with other heirs.

But has this amendment truly resolved the issue?

📚 Judicial Divergence: Two High Courts, Two Views

Unfortunately, the legal position remains muddled due to conflicting High Court judgments:

🔹 Andhra Pradesh High Court – Mallela Manimala v. Mallela Lakshmi Padmavathi (2023):Held that the wife, as a beneficial nominee, was rightfully entitled to the entire policy amount. The Court interpreted Section 39(7) in line with the legislative intent to vest beneficial ownership in family nominees.

🔹 Allahabad High Court – Smt. Kusum v. Anand Kumar (2025):Took a contrasting view—holding that even a beneficial nominee does not acquire absolute ownership over policy proceeds in the face of legal heirship claims. The Court reiterated that nomination does not constitute a third mode of succession, and legal heirs may assert rights based on personal law.

These decisions illustrate the lack of uniform judicial interpretation, creating uncertainty for all stakeholders.

🧩 Practical Issues for Policyholders & Nominees

1. Nominee ≠ Owner (in many cases) Unless clearly supported by a Will or succession law, a nominee may merely act as a facilitator—not the final beneficiary.

2. Insurers Are Not Arbiters Insurance companies are legally bound to pay the nominee—but this does not insulate the nominee from future claims by heirs or disputes in civil courts.

3. Misplaced Confidence in Beneficial Nomination Even under Section 39(7), courts remain cautious about granting ownership rights to nominees, especially when a Will or succession claim is involved.

4. Lack of Supreme Court Ruling The absence of a post-2015 Supreme Court decision on this issue leaves lower courts to interpret the law independently, leading to divergent outcomes.

   
   

Best Practices for Policyholders

✔️ Don’t Rely Solely on Nomination Nomination is not a substitute for proper estate planning. Create a clear and valid Will that aligns with your nomination.

✔️ Use Beneficial Nomination Thoughtfully If nominating a spouse, parent, or child, clearly state your intention that they are to retain the proceeds—not hold it for others.

✔️ Update Nominations Promptly Life events like marriage, divorce, births, or the death of a nominee should prompt a fresh review of your nomination records.

✔️ Seek Legal Advice for High-Value Policies If large sums are involved, a one-time consultation with an estate planning lawyer can prevent prolonged litigation later.

The Road Ahead: What Needs to Change?

The growing divergence among High Courts underscores the urgent need for authoritative interpretation from the Supreme Court or a clarificatory legislative amendment to Section 39.

Without such guidance, policyholders continue to act on assumptions that may not withstand legal scrutiny, while insurers and nominees remain vulnerable to post-disbursement litigation.

Conclusion

Nomination is meant to ensure ease of disbursement—not to settle disputes of ownership. Until the law evolves with greater certainty, policyholders must combine thoughtful nomination with proper succession planning to secure the future of their intended beneficiaries.