Nominee Holds Insurance Proceeds In Trust For Legal Heirs; Supreme Court Directs Equitable Distribution Pending Succession Proceedings

"The nominee holds the money in trust for the person entitled to succeed" Supreme Court of India, in an order, has reaffirmed the settled legal position that a nominee under a life insurance policy does not become the absolute owner of the policy proceeds.

A bench comprising Justice J. B. Pardiwala and Justice K. Vinod Chandran reiterated that a nominee merely acts as a trustee, holding the insurance money for the benefit of the legal heirs entitled to the estate of the deceased.

Nominee's Role Clarified

The dispute arose following the death of the appellant’s husband, where the father-in-law was recorded as the nominee in the life insurance policy. While the High Court had previously directed the entire disbursement to the nominee, the Supreme Court intervened, noting that the status of a nominee is limited to that of a trustee. The Court held that the nominee is legally obligated to hold the funds in trust for those entitled to inherit under the laws of succession.

Equitable Distribution Between Legal Heirs

Given that the wife and the mother of the deceased were identified as the only Class I legal heirs, the Court directed the father-in-law to transfer half of the insurance proceeds to the appellant. The Court underscored that this principle of trust is a trite position in law and ensures that the rightful heirs are not deprived of their inheritance despite the nomination status.

Court Mandates Interest On Delayed Payments

To ensure compliance, the Supreme Court stipulated a two-month timeframe for the disbursement of the funds to the appellant. Failure to adhere to this timeline will attract a penal interest rate of 12 percent per annum, calculated from the date the insurance company disbursed the funds to the nominee until the actual date of payment.

"If the amount is not paid within two months, it shall carry interest at the rate of 12% per annum from the date of disbursal by the insurer to the 6th respondent, till the date of payment."

Streamlining Parallel Litigation

The Court further addressed the existence of two pending succession cases between the parties. It directed that the order be produced before the competent court, with the instruction that these cases should be closed, provided there are no other assets to be partitioned between the parties.

Quashing Of Criminal Proceedings

In a notable exercise of its power to resolve disputes, the Court facilitated the closure of criminal proceedings. The appellant agreed not to pursue FIR No. 288/2024, registered under Sections 498A and 506 read with Section 34 of the Indian Penal Code, 1860. The Court stayed the proceedings for two months, stipulating that upon proof of the insurance payment, the Station House Officer shall file a closure report before the jurisdictional magistrate.

Date of Decision: 28 July 2026