Is it because I installed thermal pad and now heat is properly dissipating, or the thermal pad is not installed properly?
I think it's the former case because it's how thermal pad supposed to work. So I'd keep the thermal pad.
Maybe you loaded SSD more after you installed the thermal pad. I've noticed that SSDs heat more when writing to it (compared to reading from it). Did you copy some stuff from SSD or to SSD? Maybe your OS decided to optimize (TRIM) the SSD in that moment, this also can cause it to heat more.
There are programs that can show SSD temperature from its internal sensor (for example, free and open source CrystalDiskInfo), so you can monitor temperature of the SSD itself, not only of its enclosure. However, some SSDs don't have a temperature sensor, in that case programs will show some fixed temperature. It's not very easy to determine whether the SSD has a temperature sensor or not. You can experiment (if the enclosure is hot to touch, but program shows 40°C, then it's clearly incorrect) or search reviews for your SSD.
Note that, by default, CrystalDiskInfo re-reads the temperature only once every 10 minutes. You can press F5 to re-read temperature or use Function - Auto Refresh
menu to change the auto-refresh interval.