This is one of the most consequential misunderstandings in Indian personal finance, and it causes a large share of family disputes after a death.
What a nomination does
A nomination gives the bank, insurer, company or depository a valid discharge. It tells the institution whom it may safely pay, so that it is not caught between competing claimants. It is a mechanism of convenience for the institution.
The same principle explains the joint account with a survivorship clause. Payment to the survivor discharges the bank; it does not decide whose money it was. The deceased's share still belongs to the estate and still passes under the will or the law of succession.
What it does not do
It does not, by itself, transfer ownership. The settled position across a long line of authority is that the nominee receives the asset as a trustee for the legal heirs, who take it according to the will, or if there is none, the applicable law of succession. In Shakti Yezdani v. Jayanand Jayant Salgaonkar (2023) the Supreme Court confirmed this for company shares, holding that the nomination provisions of the Companies Act do not override succession law.
Under Section 39 of the Insurance Act, 1938, where the policyholder nominates a parent, spouse or child, that nominee is a beneficial nominee and holds the money beneficially rather than as a trustee. That carve-out applies to life insurance and to those categories of relatives. It does not extend to bank deposits, mutual funds, shares or property.
The Section 39 mechanics that catch people out
The nomination has to be made in the right way to work at all. It may be made when the policy is taken or at any time before it matures for payment. Unless it is incorporated in the text of the policy itself, it must be made by an endorsement on the policy, communicated to the insurer and registered by the insurer in its records. Where the nominee is a minor, the policyholder may appoint someone to receive the money during the minority, and that appointment should be made expressly rather than assumed.
The provision that surprises people is what happens when you change your mind. A nomination can be cancelled or changed by a further endorsement or by a will. But unless written notice of the cancellation or change has been delivered to the insurer, the insurer is not liable for a payment made in good faith to the nominee named in the policy or registered in its records. So altering the nomination in your will and telling nobody achieves nothing practical: the insurer pays the old nominee, lawfully, and your family is left suing to get it back. If you change a nomination in a will, write to the insurer the same week and keep the acknowledgement.
Where nomination genuinely matters
- Speed. A nominee can collect the funds quickly without a succession certificate, which matters when the family needs money immediately after a death.
- Provident fund, where the statutory scheme gives the nomination greater effect.
- It avoids the asset being frozen while heirs argue.
What to do
- Keep nominations updated on every account, policy, demat and provident fund, so someone can access the money quickly.
- Also make a will, and make sure it does not contradict the nominations. Where they conflict, the will governs ownership and the family ends up in court to establish that.
- If you intend the nominee to keep the asset, say so expressly in the will. That removes the argument entirely.
If the nominee has taken the money and will not share it
This is the situation the question usually describes, and it has a route. The nominee is accountable to the estate, so the heirs can sue for a declaration of their shares, for accounts, and for recovery, joining the nominee and, where necessary, the institution. Move quickly to protect the money, because once it has been withdrawn and spent, a decree is worth what the nominee is worth. Where the asset is still with the institution, put your claim to it in writing at once, since a bank that pays out with notice of a rival claim is in a much weaker position than one that pays out in ignorance.
Where the deceased left no will, check whether the asset can be released under the applicable nomination, survivorship or other claim process. A court grant is not inevitable for every bank balance. Where it is required, our note on the succession certificate sets out that petition. Where the institution is asking for something else entirely, our comparison of a succession certificate and a legal heir certificate explains which of the two it actually needs.
The cheapest fix remains the one nobody does. Keep a single sheet listing every account, deposit, folio, policy, provident fund and locker, with the nominee named against each, review it once a year, and make sure the will says the same thing. Where the will and the nomination agree, nothing happens. Where they differ, the family finds out in a courtroom.