Insurance is a contract between the insurance company (insurer) and you (policyholder). It is a contract with full of jargon. As much as possible, we must try to understand all the insurance terms mentioned in the policy bond (certificate). One such insurance jargon which is mostly used is Assignment.
If you are planning to apply for a home loan, your home loan provider may surely use this term. So, what is Assignment? Why assignment of a life insurance policy is required? What are different types of assignment? What are the differences between Assignment & Nomination?
What is Assignment?
Assignment of a life insurance policy means transfer of rights from one person to another. You can transfer the rights on your insurance policy to another person / entity for various reasons. This process is referred to as ‘Assignment’.
The person who assigns the insurance policy is called the Assignor(policyholder) and the one to whom the policy has been assigned, i.e. the person to whom the policy rights have been transferred is called the Assignee.
Once the rights have been transferred from the Assignor to the Assignee, the rights of the policyholder stands cancelled and the assignee becomes the owner of the insurance policy.
Assigning one’s life insurance policy to a bank is fairly common. In this case, the bank becomes the policy owner whereas the original policyholder continues to be the life assured on whose death the bank or the policy owner is entitled to receive the insurance money.
Types of Assignment
The assignment of an insurance policy can be made in two ways;
- Absolute Assignment– Under this process, the complete transfer of rights from the Assignor to the Assignee will happen. There are no conditions applicable.
- Example: Mr. PK Khan owns a life insurance policy of Rs 1 Crore. He would like to gift this policy to his wife. He wants to make ‘absolute assignment’ of this policy in his wife’s name, so that the death benefit (or) maturity proceeds can be directly paid to her. Once the absolute assignment is made, Mrs. Khan will be the owner of the policy and she may again transfer this policy to someone else.
- Conditional Assignment – Under this type of assignment, the transfer of rights will happen from the Assignor to the Assignee subject to certain conditions. If the conditions are fulfilled then only the Policy will get transferred from the Assignor to the Assignee.
- Example: Mr. Mallya owns a term insurance policyof Rs 50 Lakh. He wants to apply for a home loan of Rs 50 Lakh. His banker has asked him to assign the term policy in their name to get the loan. Mallya can conditionally assign the policy to the home loan provider to acquire a home loan. If Mallya meets an untimely death (during the loan tenure), the banker can receive the death benefit under this policy and get their money back from the insurance company.
- If Mallya repays the entire home loan amount, he can get back his term insurance policy. The policy would be reassigned to Mallya on the repayment of the loan.
- In case if the death benefit received by the banker is more than the outstanding loan amount, the insurer will pay the bank the outstanding dues and pay the balance to the nominee directly. The balance amount (if any) will be paid to Mallya’s beneficiaries (legal heirs / nominee).
How to assign a life insurance policy?
The Assignment must be in writing and a notice to that effect must be given to the insurer. Assignment of a life insurance policy may be made by making an endorsementto that effect in the policy document (or) by executing a separate ‘Assignment Deed’. In case of assignment deed, stamp duty has to be paid. An Assignment should be signed by the assignor and attested by at least one witness.
Downloadabsolute assignment deed sample format / conditional assignment deed format.
Download‘application for assignment’ sample format.
Nomination Vs Assignment
Nomination is a right given to the policyholder to appoint a person(s) to receive the death benefit (death claim). The person in whose favor the nomination is effected is termed as ‘nominee’. The nominee comes into picture only after the death of the life assured (policy holder). The nominee will not have the absolute right over the money (claim proceeds). The other legal heirs of the policy holder can also recover money from the nominee.
(However, as per Insurance Laws (Amendment) Act, 2015 – If an immediate family member such as spouse / parent / child is made as the nominee, then the death benefit will be paid to that person and other legal heirs will not have a claim on the money)
Under nomination, the rights of the policyholder are not transferred. But, assignment is transfer of rights, interest and title of the policy to some other person (or) entity. To make assignment, consent of the insurer is also required.
- Assignment of policies can be done even when a loan is not required or for some special purposes.
- If you assign the policy for other purpose other than taking a loan, the nomination stands cancelled.
- If the policy is assigned, then the assignee will receive the policy benefit. Death benefit will be paid to the Nominee, in case the policy is not assigned.
- The policy would be reassigned to you on the repayment of the loan (under conditional assignment).
- Types of insurance policies used for assignment purpose to get business loans, generally include an endowment plan, money back policy or a ULIP. Home loan providers generally ask for the assignment of Term insurance plans on their names. (The term plan tenure should be more than the home loan tenure)
- An assignment of a life insurance policy once validly executed, cannot be cancelled or rendered in effectual by the assignor. The only way to cancel such assignment would be to get it re-assigned by the assignee in favor of the assignor.
- You can also raise a loan against your policy from your insurance company itself. In this case, your policy would have to be assigned to insurance company.
- An insurer may accept the assignment or decline.(The insurer shall, before refusing to act upon the endorsement, record in writing the reasons for such refusal and communicate the same to the policy-holder not later than thirty days from the date of the policy-holder giving notice of such transfer or assignment)
- In case of death of the absolute Assignee (to whom the policy rights have been transferred under absolute assignment), the rights under the policy will be transferred to the legal heirs of the assignee.
- You can also assign a life insurance policy underMarried Women’s Property Act. (At the time of making the application (buying a policy), a separate MWPA form has to be filled by the proposer for it to be covered under MWP Act. Do note that the existing life insurance policies cannot be assigned under MWP Act)
- Partial assignment or transfer of a policy can also be made. But banks will accept any of your life insurance policies as long as the sum assured is equal to or greater than the loan amount.
Hope you find this post informative and do share your comments.
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When we talk about life insurance, we often hear the terms nomination and assignment. The former refers to the appointment of a person, to receive the proceeds upon the demise of the policyholder, whereas the latter implies the legal transfer of rights to the benefits of the policy to another person, i.e. assignee.
In the nomination, the property or amount secured by the policy remains at the disposal of the assured, till the time he/she is alive and the person appointed as the nominee is only for beneficial interest. On the other hand, in assignment the assets or policy amount passes to the assignee, as he/she gets the title or ownership and interest of the policy. Check out the given article to know the differences between nomination and assignment.
Content: Nomination Vs Assignment
- Comparison Chart
- Key Differences
|Basis for Comparison||Nomination||Assignment|
|Meaning||Nomination implies appointment of a person, by the policy holder to receive the policy benefits, on the event of death.||Assignment, alludes to, ceding of right, title and interest of the policy to another person.|
|Attestation||Attestation is not required in nomination.||Attestation is required in assignment.|
|Consideration||It does not involve consideration.||It may involve consideration.|
|Right to sue||Nominee has no right to sue under the policy.||Assignee has the right to sue under policy.|
|Purpose||To help beneficiary recover the policy amount when it becomes due for payment.||To transfer all rights and interest in favor of the assignee.|
|Revocation||Can be changed or revoked several times.||Can be revoked one or two times during the term of policy.|
|Favor||Generally, made in favor of immediate relatives.||Can be made in favor of immediate relatives or to external party.|
Definition of Nomination
In Life Insurance, nomination can be understood as a facility, which allows the policyholder or say insured to nominate a person, who can claim the policy amount, in the event of death of policyholder. If, in case, a minor is appointed as nominee, then a major should be specified, in order to receive the money secured by the policy, upon the demise of the insured.
The policyholder can make nomination either at the time of purchasing the policy, or anytime before the expiry of the term. The policyholder is allowed to change the nomination, during the term of the policy, by making a fresh nomination, which should be incorporated, either through text in the policy or through an endorsement to the policy, to become effective.
When the policy matures while the insured is alive or when the nominee dies prior to the maturity of the policy, the policy amount is paid to the policyholder, or his/her legal heir or representative.
Definition of Assignment
Assignment, as the name suggest is the legal transfer of rights from the policyholder to the assignee to receive benefits indicated in the insurance agreement. It is usually made out of love and affection with the family members or for adequate consideration to any outside party.
The assignment can be made either through an endorsement upon the policy or separate instrument, duly signed by the assignor or his agent. The signature is required to be witnessed by at least one person competent to contract. It becomes effective from the date when the documents are received by the insurance company in proper order.
In general, space for endorsement is given in the policy document to enable the holder affix the assignment statement, along with reasons for the same.
The benefits in the policy arise as a result of survival and death benefits. All life insurance policies provide death benefits, but survival benefits are concerned with maturity benefits under the policy that involves a hidden investment component.
Key Differences Between Nomination and Assignment
The difference between nomination and assignment can be drawn clearly on the following grounds:
- The appointment of an individual by the assured to receive the amount secured by the policy, upon the demise of the assured is known as a nomination. On the other hand, assignment refers to cede the right, ownership, and interest in the policy to another person.
- In the nomination, there is no requirement of attestation by the witness. Conversely, attestation by at least one witness is required in case of assignment.
- In the nomination, there is no such thing like consideration. In contrast, the assignment can be with or without consideration.
- Nomination does not entitle nominee the right to sue under the policy. On the contrary, assignment entitles the assignee the right to sue under the policy.
- The nomination is made to help beneficiary recover the policy amount when it becomes due for payment. As against this, assignment aims at transferring all rights and interest in favor of the assignee.
- Nomination can be revoked or changed several times, whereas assignment can be canceled only one or two times during the policy term.
- The nomination is made in favor of immediate relatives. As opposed, assignment is made in favor of immediate relatives or to external party.
By and large, a nomination only accentuates the hands, to whom the policy amount is to be paid on the death of the assured, so that the insurance company gets the valid discharge of liabilities, as per the policy. Nevertheless, the amount can be claimed by the legal heirs of the policyholder.
The assignment is generally made by the policyholder out of love for the immediate relatives or even for certain consideration from an external party. Assignment without consideration to an external party is subject to detailed scrutiny, as it is seen as a possible way of money laundering.
Filed Under: Law