Guardian for a COVID-orphaned child? Learn about late parents’ bank accounts and insurance policies

The COVID-19 pandemic’s second wave unleashed misery across the country, leaving behind lakhs of distraught families. Children who lost both their parents find themselves in vulnerable positions. A special focus may be necessary to take care of their needs. In the first article of this two-part series, Moneycontrol looked at the institutional framework in place for their care as also their guardians’ responsibilities as per law. In this concluding part, we delve into how guardians can gain access to the investments and insurance polices of the orphaned kids' parents.

First stop: bank accounts

Before you, as the guardian, initiate other financial transactions, you need to first ensure that the children, through you, gain access to their parents’ bank accounts. If parents did name children as nominees, you can send an application to the respective banks and manage the accounts till children attain majority. “In case the minor children have not been appointed as nominees, the guardian can, on their behalf, produce proof such as death certificates, proof of appointment of guardian (i.e. court order) and proof of identity of the minor and the guardian (Aadhaar card, passport, etc). Thereafter, the monies may stand transferred to the legal heirs (i.e., minor children represented by their guardian),” explains Shroff.

Stake a claim to the life insurance proceeds

Over the years, life insurance companies have been heavily promoting their child plans, tapping into parents’ concerns around their children’s future in their absence. The current scenario, therefore, presents the ‘moment of truth’ for life insurance companies.

Usually, the claim settlement process begins after the policyholders’ spouses reach out to the life insurer. But in cases such as these, it is unlikely that children will be aware of the policy’s existence. “Since the beneficiary nominee (spouse in these cases) is also not alive, the title will become open. In such situations, the legal heir of the deceased life assured has to be established by obtaining a succession certificate from an appropriate court of law and claim can be paid only on production of the same.  If the Class I legal heir happens to be a minor, a legal guardian is also required to protect the interests of the minor,” explains Anand Pejawar, President, Operations, IT & International Business, SBI Life Insurance.

If you decide to take care of the child, you will have to obtain a Legal Guardianship Certificate from a court and in order to protect the interests of the minor, “The claim amount will be paid to the account of the minor through the legal guardian or as directed by a Court,” says Pejawar. The amended Insurance Act, 2015 has created a new category termed ‘beneficial nominees’ – if parents, spouse or children of policyholder are nominated in the policy, their rights will supersede those of legal heirs. Until 2015, nominees were merely custodians from whom the legal heirs had to claim their share in the insurance proceeds.

It is likely that spouses will either be aware or at least have access to the policyholder’s documents. But how should guardians go about making a claim? “It is possible that children may not be aware of the life insurance policies the deceased parents may have purchased to ensure their financial security. But if the nominees do not inform life insurers, such cases come to our notice only when we make follow-up calls for renewals. Perhaps there is a case for insurers, through the Life Insurance Council, to start awareness campaigns for informing people about the claim settlement processes,” says a senior official from a private life insurance company.

Mutual funds

In case of life insurance policies, for which premium payment is a recurring transaction, there is a chance that the insurer will reach out to at the time of renewal and you will discover the policy details. But this is not the case with mutual funds and other investments. Once you have been appointed as the guardian, you will have to physically search for such financial documents. “Usually, people stumble upon such documents when they scour the cupboards. You can also ask the children if they are aware of any mutual funds or bank accounts being discussed at home,” says an official at a childcare NGO who did not wish to be named. Like other assets, the children can inherit their parents’ mutual fund investments in line with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996. “An appointed guardian can claim the parents’ funds on behalf of the minor. This can be achieved by making a written application along with relevant documentation (which could vary depending on the internal policies of the concerned depositary) to initiate the process,” says Shroff.

Like other assets, the investment will be transferred to the children’s name, with he guardians acting as custodians till the children attain majority. “You will need to obtain a legal heir certificate, parents’ death certificates and PAN card details to complete the process,” says Vinayak Savanur, Founder, Sukhanidhi Investment Advisors.