Thursday, 10 November 2022

Have you read the T & C of Pradhan Mantri Jeevan Jyoti Bima Yojana?

Pradhan Mantri Jeevan Jyoti Bima Yojana
Our beloved Prime Minister Narendra Bhai Modi has launched the Pradhan Mantri Jeevan Jyoti Bima Yojana as a measure of providing social security and life cover to individuals between the age of 18 years to 50 years. The scheme has been launched with much fanfare to make it successful. The nationalized banks are making all-out efforts to make the scheme successful as it is the cheapest Life Insurance Cover for any individual. The Bank customers are not being provided any Insurance Policy individually as the issuing bank will manage the Master Policy for its customers. 

Neither the customers are aware of the "Terms and Conditions" nor the hidden clauses. To create awareness among the prospective buyers of PMJJBY I was prompted to write this article as I enquired about the "Terms and Conditions" of the very cheap and popular social security measure. Though I am not eligible under the scheme, having crossed the maximum age bar of 50 years, though I thought it my duty to share the "Terms and Conditions" with public audiences so that they do not feel cheated as is the case with such popular schemes. While taking the Life Cover under PMJJBY from your Bank, please keep the following things in mind:

  1. Bank People may get your signatures in the prescribed form to debit the cost of insurance that is Rs.330-00 + Service Tax for life cover of Rs.2.00 lac. Before signing debit voucher please ensure that your bank balance does not go below the "Minimum Balance" prescribed by your bank lest you may feel cheated when subsequently minimum balance charges are debited to your account.
  2. Please ensure that correct "Date of Birth" is incorporated in your Bank Records so that your nominees do not get into any difficulty if at a later stage it is found that you were not eligible under the scheme as per Clause which reads as "The savings bank account holder of the participating banks aged between 18 years (completed) and 50 years (age nearer birthday) and who have given the consent to join the scheme during the ‘enrollment period’ are eligible to join the scheme".
  3. As per clause (5) of the scheme which reads "Satisfactory evidence of health as required by the Corporation shall be furnished by every eligible member, at the time of his entry into the Scheme, after the ‘ Enrollment Period’, as incorporated in the “Consent-cum-Declaration Form” for joining the scheme". As evidence of health is to be provided by the Saving Bank account holder - ask your bank as to who will bear the cost of - medical checkup if any to prove evidence of health lest the heavy cost may be debited to your saving account without your knowledge and you may feel cheated once again.
  4. Clause (6) of the scheme reads as " Renewal premium is chargeable as per the rate decided from time to time on Annual Renewal dates". It clearly indicates that rate of Insurance Premium can be increased forcing you to opt out of the scheme. Ask your bank that there will be no change in Renewal Premium. Further Clause (19) which reads as "The rate of premium and conditions of Assurance under which the Corporation is prepared to arrange the Scheme shall be subject to an agreement between the Bank and the Corporation. The conditions of acceptance of risks and rates of premium may be amended by the Corporation from time to time on any Annual Renewal Date subject to 3 months notice being given to the Bank" also deprives the Bank customers of its right to argue.
  5. Make Proper Nominations to receive the insured amount of Rs.2,00,000/- in case of any eventuality.
  6. Please ensure that your bank account remains active and has sufficient balance on the renewal date lest the Life Risk gets suspended due to either insufficient balance or inactive account.
  7. Clause (12) of the scheme stipulates that "The “Bank” or “Corporation” reserves the right to discontinue the Scheme at any time or to amend the Rules thereof on any Annual Renewal Date subject to giving one month’s notice. Any amendment to the Rules of the Scheme will be done based on mutual agreement between “Corporation” and “Bank”. This Clause reminds me of the Rajalakshmi Unit Scheme of UTI (RUS-92) in which the UTI in connivance with the then Government of India under the Finance Ministry of Ex-Prime Minister Manmohan Singh cheated the minor girl child through legislation passed in a way determinantal to the interests of the beneficiaries of the RUS-92 scheme.
I also caution my fans, audiences, and the public, in general, to check the "Terms and Conditions of Insurance" as I am of the confirmed opinion that Insurance is no substitute to Social Security.

Tuesday, 8 November 2022

Is Legal Heir and Nominee are the Same?

I wonder how many of us are aware of this legal twist……... Read on

Will your Nominee get the money on your death?

Did you think that the nominee is the person, who will get all the money legally from your Life Insurance Policy and Mutual funds investments?

Yes! That is exactly what you think if you are not aware of the legal aspects.

We assume a lot of things that sound like they are obvious, but are not true from the legal point of view.

Today, we all concentrate on nominations in financial products.

  1. For whom are we earning?
  2. For whom are we investing?
  3. Who, do we want to leave all our wealth to, in case something happens to us?

It might be your children, your spouse, parents, siblings, etc., or just a subset of these.  You also might want to exclude some people from your list of beneficiaries! So, you think you will nominate person X in your Insurance policy, and when you are dead and gone, all the money goes to person X and he/she becomes the sole owner? You are wrong, dude!

It does not work that way. Let us see how it actually does!

What is a Nominee?

According to law, a nominee is a trustee, not the owner of the assets. In other words, he is only a caretaker of your assets.

The nominee will only hold your money/asset as a trustee and will be legally bound to transfer it to the legal heirs.

For most investments, a legal heir is entitled to the deceased’s assets.

For instance, Section 39 of the Insurance Act says the appointed nominee will be paid, though he may not be the legal heir.

The nominee, in turn, is supposed to hold the proceeds in trust and the legal heir can claim the money.

A legal heir will be the one who is mentioned in the will.

However, if a will is not made, then the legal heirs of the assets are decided according to the succession laws, where the structure is predefined on who gets how much.

For example, if a man during his lifetime executes a will... In the will, he mentions his wife and children as legal heirs, then after his death, his wife and children are the legal owners of his assets.

It is essential that one needs to execute a will.

It is the ultimate source of truth and replaces the succession law.

The nominee can also be one of the legal heirs.

Important: Mention the Full Name, Address, age, and relationship to yourself of the nominee. Do not write the nomination in favor of the wife and children as a class. Give their specific names and particulars existing at that moment. If the nominee is a minor, appoint a person who is a major as an appointee giving his full name, age, address, and relationship to the nominee.

Why is the concept of a Nominee?

So, you might be wondering, if the nominee does not become the sole owner, why does such a concept of a nominee exist at all?

It is pretty simple. When you die, you want to make sure that the Insurance company, Mutual fund, or your Shares should at least get out of the companies and go to someone you trust, who can further help, in the process of passing it to your legal heirs.

Otherwise, if a person dies and has not nominated anyone, your legal heirs will have to go through the process of producing all kinds of certificates like death certificates, proof of relation, etc., not to mention that the whole process is really cumbersome! (For each legal entity! The insurance company, the mutual funds, the shares, for the real estate).

So, to simplify, if a nominee exists, these hassles do not happen, since the company is bound to transfer all your money or assets to the nominee.

The company then goes out of the scene & then, it is between the nominee and legal heirs.

Example of Nomination: Vijay was 58 years old and died recently in an accident. As his children were settled, he wanted to make sure that his wife is the sole owner of all the monetary assets. This includes his insurance policy and mutual funds. So, during his lifetime, he nominated his wife as a nominee in his term insurance policy and mutual funds investments. However, after Vijay’s death, things did not turn up the way he wanted. The reason being Vijay did not leave a will. Though his wife was the nominee in all his movable assets, as per the law, his wife, along with his children, were the legal heirs and all of them had an equal right to Vijjay’s assets.

One simple step which could have saved the situation was that Vijay should have made a will that clearly stated that only his wife was entitled to get all the money and not his children.

Nomination in Life Insurance: A policyholder can appoint multiple nominees and can also specify their shares in the policy proceeds. Nomination in life insurance has one limitation, as insurance policies are bought to secure your financial dependents, your first choice of the nominee has to be your family members. In case you want to nominate a non-family member like a friend or third party, you will have to show/PROVE to the insurance company that there is some insurable interest for the person. This happens because of a Clause called PRINCIPAL OF INSURABLE INTEREST in insurance. Note that the provision of nomination in life insurance is related to Section 39 of the Insurance Act.

Note that as per the LIC website:

The nomination is a right conferred on the holder of a Policy of Life Assurance on his own life to appoint a person/s to receive the policy money in the event of the policy becoming a claim by the assured’s death. The Nominee does not get any other benefit except to receive the policy money on the death of the Life Assured.

A nomination may be changed or canceled by the life assured whenever he likes without the consent of the Nominee.

Make sure, you have a nominee for your policy for easy settlement of the claim, if you do not have any nominee mentioned in the policy, it can turn out to be a disaster for your dependents to get a claim.

Nomination in Mutual Funds:

In the case of mutual funds, you can nominate up to three people, who can be registered at the time of purchasing the units. While filling in the application form, there is a provision to fill in the nomination details.

Even a minor can be a nominee, provided the guardian is specified in the nomination form. You can also change nominations later by filling up a form that is available on the mutual fund company website. Nomination in mutual funds is at the folio level and all units in the folio will be transferred to the nominee(s). If an investor makes a further investment in the same folio, the nomination is applicable to the new units also.

A non-resident Indian can be a nominee, subject to the exchange control regulations in force from time to time.

Nomination in Shares:

Quiz for you: Now you know what a Nominee means and who actually gets the money. So, if there is a husband H, with wife W and nephew N, and he has nominated his nephew N to be the nominee of his shares in the Demat account, who will have the legal right to own the shares after the husband’s death? If your answer is wife, you are wrong in this case!

In the case of stocks, it does not work the usual way, if a will does not exist.

In the verdict, Justice Roshan Dalvi struck down a petition filed by Harsha Nitin Kokate, who was seeking permission to sell some shares held by her late husband.

The Court noted that as she was not the nominee, she had no ownership rights over the shares. Ms. Kokate’s lawyer had argued that as she was the heir of her husband who had died intestate (without a will), she should have ownership rights of the shares, and be able to do anything with them as she wished.

In this case, Ms. Kokate’s husband had nominated his nephew in favor of the shares. Justice Dalvi, however, noted that under the provisions of the Companies Act and the Depositories Act, Acts which govern the transfer of shares, the role of a nominee was different.

A reading of Section 109(A) of the Companies Act and 9.11 of the Depositories Act makes it abundantly clear that the intent of the nomination is to vest the property in the shares which include the ownership rights thereunder in the nominee upon nomination validly made as per the procedure prescribed, as has been done in this case.

It means that if you have not written a will, anyone who has been nominated by you for your shares will be the ultimate owner of those stocks... The succession laws on inheritance will not be applicable... but, in case, you have made a will, that will be the source of truth.

Nomination in PPF:

Let me give you some shock first. If you have Rs 10 lakh in your public provident fund (PPF) account and you have not nominated anyone for your PPF account, your legal heirs will get a maximum of Rs 1 lakh only!

Yes, it is so important to have a nominee, now you get it.

You can nominate one or more persons as nominees in PPF. Form F can be used to change or cancel a nomination for PPF. Also, note that you cannot nominate anyone if you open an account for a minor.

Nomination in Saving/Current/FD/RD Account in Banks:

FDs also comes with a nomination facility. While opening a new account, there is a column for nomination in the same form and you should fill it out. You can nominate two persons with the first and second options. Note that in case you have not done any nominations till now, you should request Form No DA-1 from your Bank which is used to assign a nominee in the future. (Examples of Banks like ICICI Bank, HDFC Bank, and Canara Bank).

In the same way, to change/cancel the nomination, you need to fill up Form no DA-2.

Read about Corporate Fixed Deposits:

As per a famous case, A Bench of Justices Aftab Alam and R M Lodha in an order said that the money lying deposited in the account of the original depositor should be distributed among the claimants in accordance with the Succession Act of the respective community and the nominee cannot claim any absolute right over it.

Section 45ZA (2) (Banking Regulation Act) merely put the nominee in the shoes of the depositor after his death and clothed him with the exclusive right to receive the money lying in the account. It gives him all the rights of the depositors so far as the depositors' account is concerned. But, it by no stretch of the imagination makes the nominee the owner of the money lying in the account, the Bench observed.

CONCLUSION:

The nomination is one important aspect you should seriously consider when checking for the financial products you have bought or plan to buy in the future. It’s important to make sure that your loved ones do not face legal issues.