what is assignment and nomination in insurance

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Assignment vs Nomination in Life Insurance

Table of Content:

• Difference between nomination and assignment
• What is nomination in life insurance?

1. Beneficial Nominee

• 2. Minor Nominee

3. Non-Family Nominee

4. multiple nominees.

• 4. Changing Nominee
• 6.Successive Nominee
• Important things to know about nominations
• What is an assignment in life insurance?
• Types of assignment in life insurance

Important things to know about assignments

• Differences between nominations and assignments:

Difference between Nomination and Assignment

In life insurance products, two terms assignment and nomination are frequently used. While not many may understand them, it is imperative to know the meaning and the difference between assignment and nomination before purchasing any insurance plan. 

The primary difference is about policy ownership. While in nomination, the policy owner remains unchanged. However, in an assignment, the policy ownership is transferred from one person to another. The nominee (as in nomination) gets the benefit after the death of the life assured but the assignee (as in assignment) gets the benefits when the life assured transfers the rights and ownership of his/her policy to the assignee. These are some of the basic and common differences between nomination and assignment. 

Let us learn some more about assignment and nomination, and what role they play in insurance. 

What is Nomination in life insurance?

Nomination is one of the most essential processes of the life insurance policy. The policyholder has to make any one family member his/her nominee. The nominee is considered eligible to claim the benefits of the life insurance policy if the insured individual dies. In this way, the insurance company ensures that the family of the insured does not have to suffer financial problems even after an earning member of the family passes away. Hence, the policyholder should choose the nominee of his/her insurance policy carefully.

Types of nominees in life insurance  

The policyholder gets the choice of choosing one among the five types of nominees. Let’s understand them in detail. Here are the following five types of nominees in life insurance:

IRDA has introduced a new term ‘beneficiary nominee’ instead of the nominee. It means that the policyholder has the right to make anyone his/her nominee. The nominee can be the policyholder’s parent/ guardian, child, or companion. If the policyholder has already chosen his/her nominee, then no dispute will arise in getting the claim.

2. Minor Nominee

The policyholder can make his/her minor child the nominee of his/her life insurance policy to secure the child’s future in his/her absence. But if the insured individual dies untimely, the amount of the claim will be payable to the legal custodian or the appointee of the child. The child’s custodian hands over that money to the child when he/she turns 18 years old.

It is also possible for the policyholder to choose a non-family member as his/her nominee. However, this is generally not recommended.

Two or more two persons can be chosen by the policyholder under the multiple nominees of the insurance policy. In this case, the policyholder divides the share of the total amount between the two nominees. If the policyholder doesn’t divide the amount while filling the nomination form, then, the amount of the claim is divided equally between the nominees by the insurer.

5. Changing Nominee

Under this type of nominee, the policyholder is able to choose his/her nominee during the life insurance policy tenure.

6. Successive Nominee

Under many circumstances, people prefer choosing more than 1 nominee, in successive nominations, one can choose up to three nominees. After the death of the insured, the 1st nominee will receive the death benefit. In case the 1st nominee is also dead, the death benefit will go to the 2nd nominee and so on. 

Important Things to Know About Nominations  

There are a few quintessential things about the nominations that every policyholder must keep in mind. The important things that should be known about nominations are given below: 

• The life assured and the policyholder should be the same in the life insurance policy for the process of nomination. If they are two different persons, then, the claim benefits will be taken by the policyholder of the insurance plan.
• The nominee has no right to request any kind of change in the insurance policy.

What is an Assignment in Life Insurance?

Under Section 38 of the Insurance Act, 1938, there is a provision for assignment in life insurance. The policyholder transfers the rights of his/her policyholder to another person. The person who transfers the insurance rights is called the assignor and the person to whom the policy rights are transferred is called the assignee. In this way, the assignee becomes the owner of the insurance policy. 

Generally, the people choose banks for assigning their policy rights. The bank becomes the policyholder but the life assured of the insurance policy is not changed. The benefits of the claim are received by the bank (policyholder). 

Types of Assignment in Life Insurance  

There are two types of assignment in life insurance i.e. Absolute Assignment and Conditional Assignment.

1. Absolute Assignment

In the absolute assignment, the rights of the life insurance policy are given to another person (assignee) without any terms and conditions. Generally, this type of assignment is done by the policyholders to show love for someone or to repay the bank loan.

2. Conditional Assignment

In a conditional assignment, the policyholder (assignor) transfers the rights of the life insurance policy to another person (assignee) under certain terms and conditions. If the terms and conditions are fulfilled, only then, the ownership of the policy will be transferred. 

Check out the essential things about the assignment that you must not forget to keep in mind:

• Only the owner of the policy is changed in the assignment. The life assured will remain the same.
• The policyholder of each insurance plan can transfer the rights of the insurance policy to the assignee. Only the pension plan and the insurance plans that are bought under the Married Women’s Property Act (MWP) are excluded.
• The nomination of the insurance policy is cancelled if the policyholder gives the rights of his/her insurance policy to the insurance company for paying the insurance company’s loan.

Differences between Nominations and Assignments

The table given below gives you a quick insight into the several differences between nominations and assignments.

It is very important for the policyholder to know about assignment and nomination. This is because the nomination and assignment have their own benefits that the policyholder can enjoy without any ado. Therefore, a piece of complete information has been shared with the help of this article. It is recommended to the policyholder to choose the right life insurance policy that can serve their family members even in their absence.

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1. What is the meaning of endorsement in the assignment?

The policyholder has to sign the endorsement while transferring the rights of his/her insurance policy to the assignee. The sign of one witness is also required. Thereafter, the policyholder (assignor) has to mention precisely the reasons for transferring the rights of the insurance policy. The terms and conditions are also mentioned in the form (if any). Furthermore, the details of the assignee are also included in the form. 

2. What are the liabilities and rights of the assignee?

The liabilities and rights of the assignee are different on the basis of the types of assignment. In the absolute assignment, the right of policy ownership, responsibility to pay future insurance premiums, and the right of getting maturity benefits are transferred to the assignee. But in the conditional assignment, these rights and liabilities are determined as per the terms and conditions. 

3. When does the insurance company cancel the nomination in the assignment process?

When the assignor assigns the rights of the insurance policy to the assignee, then the nomination is cancelled by the insurance company. The nomination is not cancelled if the assignment is temporary. In that case, the rights of the insurance policy will be given back to the insured when he/she will pay the loan. 

4. Who can become the assignee of my insurance policy?

The assignee of the insurance policy can be a person or a financial institution. There should be an insurable interest between you and the person/financial institution. The assignee is either temporary or permanent. In some cases, the insured chooses the financial institution or insurance company as the assignee on some terms and conditions. But after some time, when the loan is paid, the insured will become the owner of the insurance policy again.

5. When does the insurance company accept the assignment?

If the insurance company finds that there is an insurable interest between the assignor and assignee, then the assignment is accepted. The insurance company makes sure that the assignment is not against the public interest and also not for trading purposes. The assignment should be in the interest of the policyholder only.

This article is issued in the general public interest and is for educational purposes only. The blogs should not be used as a substitute for competent expert advice from a licensed professional to best suit your needs. Insurance is a subject matter of solicitation. For more details on policy terms, conditions, exclusions, limitations, please refer/read policy brochure before concluding sale.

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• Key Differences

Know the Differences & Comparisons

Difference Between Nomination and Assignment

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.

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.

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What's the difference between nomination and assignment?

Nomination and Assignment serve different purposes. The nomination protects the interests of the insured as well as an insurer in offering claim benefits under the life insurance policy. On the other hand, assignment protects the interests of an assignee in availing the monetary benefits under the policy.

What does assignment mean in insurance?

What is meant by nomination.

Nomination is part of the process of selecting a candidate for either election to a public office, or the bestowing of an honor or award. A collection of nominees narrowed from the full list of candidates is a short list.

What does it mean for life insurance to be assigned?

​What is meant by assigning? Interest in a life insurance policy can be transferred from the policyholder to a lender or relative by assignment of policy . Here the policyholder is known as the assignor and the person in whose favour the policy has been assigned is called assignee.

What is the difference between Nominee and assignee?

A nominee is ordinarily a related entity to the buyer named in the purchase and sale agreement. An assignment occurs when the buyer assigns their interest in the purchase and sale agreement to someone else. An assignee is an entirely different person or entity.

Nomination and Assignment 1 Meaning & Difference between ! In Hindi ! Insurance Products

Does assignment cancel nomination?

Under the assignment, only the ownership is transferred/changed, not the risk of the policy. This means the life assured is/will be considered as the person insured. The assignment may lead to cancellation of the nomination in the policy only when it is done in favour of the insurance company due to a policy loan .

What does assignment of a contract mean?

Assignment is a legal term whereby an individual, the “assignor,” transfers rights, property, or other benefits to another known as the “assignee.” This concept is used in both contract and property law. The term can refer to either the act of transfer or the rights/property/benefits being transferred.

What are two types of assignments?

The two types of assignment are Collateral (partial), and Absolute (entire face amount) .

What are the two types of assignments in life insurance?

• An absolute assignment is typically intended to transfer all your interests, rights and ownership in the policy to an assignee. ...
• A collateral assignment is a more limited type of transfer.

What is the procedure for assignment in life policy?

Assignment of a life insurance policy may be made by making an endorsement to 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.

What is nomination example?

Examples of nomination in a Sentence Membership is by nomination only. The novel earned a nomination for the National Book Award . The film received five Academy Award nominations. The nominations for the Academy Awards have been announced.

Who can do nomination?

Who is a Nominee? A Nominee is a person whom you can list in your investment or bank application as the person who can receive the proceeds of your account in case of your unexpected death. The nominee can be anyone you deem to be your first relative - your parents, spouse, kids, siblings etc.

What is the importance of nomination?

The nominated person is called a nominee. The selection of nominee ensures that the life insurance company knows whom to pay the assured money after the demise of the policyholder . Since the nomination is not mandatory, many of us consider it just another formality and overlook its importance.

What is assignment and nomination in insurance?

Why is assignment of benefits not recommended.

Loopholes in the way AOB is being used are enabling contractors and restoration companies to abuse the practice by inflating claims costs and charging insurance companies for work that was either unnecessary or simply wasn't done at all. These fraudsters then keep any extra money for themselves.

What are the types of assignment?

• essays. Discover the basic structure of all essays and see what a good essay introduction and conclusion look like.
• Reports. ...
• Literature Reviews. ...
• Annotated Bibliographies. ...
• Reflective Tasks. ...
• Case Studies. ...
• Group work. ...
• group presentation skills.

What does policy assigned mean?

assign a policy in Insurance If you assign a policy, you transfer legal ownership of an insurance policy to another person . The policy may be assigned to someone else by written request of the current owner.

What happens when you assign an insurance policy?

Assignment of a Life Insurance Policy simply means transfer of rights from one person to another . The policyholder can transfer the rights of his insurance policy to another for various reasons and this process is called Assignment.

Can an insurance policy be assigned or transferred?

In insurance also when rights and obligation under the contract are transferred from one to another, the same is called assignment of the policy . There can be another assignment in insurance which is assignment of benefits under the policies. Assignment of policy and assignment of benefits are quite distinct.

What is the purpose of assignment?

An assignment is a piece of (academic) work or task. It provides opportunity for students to learn, practice and demonstrate they have achieved the learning goals . It provides the evidence for the teacher that the students have achieved the goals.

What is assignment called in university?

It's called a thesis . It is not exactly an exam, it's more complex, it generally takes more than a year to get the assignment done.

What is college assignment?

Assignments usually take the form of written pieces of work that are set by your course tutors . They also usually contribute towards your final course mark or grade. The types of assignment that you could be set depend on the course you are studying.

Can assignment be revoked?

Generally, donative assignments are revocable . An assignor can revoke an assignment by notifying the assignee of the revocation, by accepting the obligor's performance, or by subsequently assigning the same right to another party. Also, the death or bankruptcy of the assignor will automatically revoke the assignment.

Why would you assign a contract?

An assignment of contract occurs when one party to an existing contract (the "assignor") hands off the contract's obligations and benefits to another party (the "assignee"). Ideally, the assignor wants the assignee to step into his shoes and assume all of his contractual obligations and rights .

What is assignment example?

The definition of an assignment is a task that has been given to someone. An example of an assignment is homework given to a student .

Information Page On Difference Between Assignment Vs Nomination In Life Insurance

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Nomination and assignment difference  

The words, assignment and nomination, are commonly used in life insurance policies . While not everyone understands them, it is critical to know the meaning and difference between assignment vs nomination before acquiring any insurance plan.  

The primary distinction is one of policy ownership. The policy owner remains constant while under nomination. An assignment, on the other hand, transfers policy possession from one individual to another. The advantage is paid to the nominee (as in nomination) post the demise of the life assured, but the advantage is paid to the assignee (as in assignment) when the life guaranteed passes the rights and possession of his/her plan to the assignee. There are some fundamental and prevalent distinctions between the nomination and assignment. 

This article will elaborate some more about assignment and nomination, and the role played by them in insurance. 

What exactly is life insurance nomination?  

Among the most important aspects of a life insurance policy is nominating. The policyholder must designate a family member as their own nominee. If the insured person dies, the nominee is regarded as being qualified to receive the advantages of the life insurance policy. In this method, the insurance company makes sure that the insured’s family does not face financial difficulties even if a salaried member of the family dies. As a result, the insured should exercise caution while selecting the candidate for his or her insurance policy. 

Nominee types in life insurance  

The policyholder has the option of selecting one out of the five sorts of nominees. Let’s take a closer look at them. The five distinct kinds of nominees in life insurance are as follows: 

1. Beneficial Nominee  

Instead of the nominee, IRDA has coined the term “beneficiary nominee.” It indicates that the owner of the policy has the authority to appoint anyone as their nominee. The property owner’s guardian/parent, kid, or partner can be chosen as the nominee. If the insured has already picked a nominee, there will be no conflict in receiving the claim. 

2. Minor Nominee  

To ensure the future of the kid in their absence, a policyholder may designate his or her younger child the chosen beneficiary of his or her life insurance policy. However, if the insured person dies prematurely, the amount claimed will be paid to the child’s official guardian or an appointee. When the child reaches the age of 18, the caretaker transfers the money to him or her. 

3. Non-Family Nominee  

The insured may also select an outsider as his or her candidate. However, this is not usually advised. 

4. Multiple Nominees  

According to the insurance policy of multiple nominees, the policyholder may choose two or more people. In this situation, the owner of the policy splits the total sum among the two nominees. In case the policyholder fails to split the amount when filling out the nomination form, the insurance company divides the claim sum equally among the nominees. 

5. Changing Nominee  

The policy owner can choose his or her candidate under this sort of nominee during the term of the life insurance policy. 

6. Successive Nominee  

In many cases, people want to select multiple nominee; in consecutive nominations, one might select a maximum of three nominees. The benefit for death will be paid to the first candidate upon the demise of the insured. If the first nominee dies, the benefit for death will be paid to the second nominee, and so on. 

What you must know about nominations?  

There are quite a few fundamental aspects of nominations which any policyholder should be aware of. The following are the most crucial facts concerning nominations:  

• For the purpose of nominating, the life guaranteed and the insured should be the same under the life insurance contract. If they are two separate people, the claim for rewards will be utilized by the insurance scheme’s policyholder. 
• The candidate has no authority to propose changes to the insurance policy. 

What is a life insurance assignment?  

There exists an opportunity for assignment in life insurance as per Section 38 of the Insurance Act of 1938 . The policyholder transfers his or her policy owner’s rights to a different individual. The assignor is the individual that transfers the rights, and the assignee is the person to whomever the policy rights are passed. The assignee thereby acquires the legal proprietor of the policy of insurance.  

People typically select banks to assign their policy rights. The bank replaces the policyholder, while the insurance policy’s life assured remains same. The bank receives the advantages of the claim (policy owner). 

Life insurance assignment types  

In life insurance, there are two types of assignments: absolute assignment and conditional assignment. 

• Absolute Assignment   

The entitlements to a life insurance policy are granted to another individual (assignee) without any limitations and conditions in a complete assignment. In general, policyholders perform this type of task to express their affection for somebody or to return a bank debt. 

• Conditional Assignment  

The policy owner (assignor) assigns the entitlements to the life insurance coverage to another individual (assignee) according to the particular terms and conditions in a conditional assignment. Only when the terms and circumstances are met will the rights to the policy pass on. 

What you must know about assignments?  

Look at the most important aspects of the assignment you must always remember: 

• The assignment solely impacts the insurance policy’s owner. The life assurance will remain unchanged. 
• Each insurance plan’s owner has the option to transfer the rights to an assignee. Solely the insurance policies and pension plans that were purchased under the Married Women’s Property Act (MWP) are exempted. 
• If the policyholder transfers the entitlements to his or her insurance coverage to the insurance company in order to repay the insurance company’s loan, the authorization of the insurance policy is terminated. 

Nominations and assignments variances  

The table provided below offers a quick overview of the various distinctions between nominations and assignments.  

Conclusion   

It is critical for a policyholder to understand assignment and nomination. This is due to the fact that both nomination and assignment possess their own set of advantages that the policyholder can take advantage of immediately. As a result, with the assistance of this post, a whole piece of knowledge has been delivered. It is advised that policyholders get the correct life insurance coverage that will benefit their family members even if they are not present. 

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What Is Nomination And Assignment in Life Insurance?

Listen to What Is Nomination And Assignment in Life Insurance?

Life insurance is a contract between an insurer and a policyholder. An insurer guarantees a sum assured to the beneficiary/nominee on the policyholder's unfortunate demise in return for the premiums paid. When entering into any contract, it is necessary that both parties read and understand the fine print. While buying a life insurance policy, a potential policyholder may come across certain jargon that is difficult to understand for a layman. Entering into a contract without thoroughly reading or understanding the exact meaning of these terms can lead to disappointments in the future. Hence, before making a buying decision, it is best to read the fine print and know the exact meaning of all the terms. Nomination and assignment are two terms that many policyholders get perplexed with, but you must understand them before buying life insurance.

What is Nomination?

You might be familiar with the nomination facility in Savings Bank Account. Nomination in life insurance works in the same way. While buying a life insurance policy, the policyholder appoints a nominee to receive the insurance benefits. Upon the insured's death, the nominee receives the sum insured by the life insurance policy. Section 39 of the Insurance Act 1938 governs the nomination process.

So, a nomination is a right given to the policyholder/ insured to appoint a person (nominee), usually a close family member, to receive the insurance benefits in the event of the demise of the insured.

What are the types of Nominees?

Here are some of the types of Nominees:

1. Beneficial Nominees:

The Insurance Regulatory and Development Authority of India has introduced the new term 'beneficiary nominee' instead of 'nominee'. The policyholder has a right to make any of his/her close relatives, i.e., parent, guardian, child, or spouse, a nominee. Appointing the nominee eliminates the chances of any disputes arising at the time of claim settlement. Bear in mind that only your immediate family members can become beneficial nominees.

2. Minor Nominees:

Many policyholders prefer appointing their child/children as nominees for their life insurance policies. However, if the child has not completed 18 years and is still a minor, he/she does not meet the eligibility criteria to handle the claim amount. So, in case of an unfortunate demise of the insured, the claim amount is payable to the legal custodian or the child's appointee. The legal custodian hands over the sum to the child when he/she turns 18 years old.

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3. Non-family Nominees:

In certain exceptional situations, the nominee can choose a non-family member as his/her nominee. However, you should check the terms pertaining to the nomination with your insurer and know that appointing a non-family nominee is generally not recommended.

4. Changing Nominees:

The policyholder has the right to change the nominees as many times as he/she wants. But bear in mind that the latest nominee will supersede all the previous nominees.

5. Multiple Nominees:

The policyholder can choose to appoint more than one nominee to his/her life insurance policy. In the case of multiple nominees, the policyholder divides the share of the total amount between multiple nominees. If the policyholder has not divided the share/percentage of the policy, the claim amount is equally divided between nominees.

6. Successive Nominees:

The successive nomination allows the policyholder to choose more than one nominee in a successive manner. So, in case of the demise of the policyholder, the claim amount will go to the first nominee. In case of the demise of the first nominee, the claim amount will go to the second nominee, and so on.

What are the key points to note about the Nomination?

In order to appoint a nominee, the policyholder and insured must be the same.

If the policyholder and insured are different individuals, the claim benefits are paid to the policyholder.

Certain life insurance plans do not allow any change or modification in the nominee unless the demise of the nominee.

The policyholders are allowed to appoint more than one nominee.

What is an Assignment?

An assignment is transferring the rights, title, and ownership of the life insurance policy to another individual or entity. The policy can be assigned when the rights of one person are transferred to another.

The person who transfers the policy is called an assignor, and the person to whom the policy is transferred is called the assignee. The assignment is governed under Section 38 of the Insurance Act 1938.

There could be many reasons why a policyholder wants to transfer his/her policy to someone else. For example, in the case of a Loan Against a Life Insurance Policy, the policyholder assigns his/her life insurance policy to the bank. So, the bank becomes the policy owner, and in case of the demise of the assignor, the bank claims the insurance benefits.

What are the types of Assignments?

1. Absolute Assignment:

Under absolute assignment, the assignor transfers all the rights, titles, ownership, and interest to another person or entity. The ownership of the policy is transferred to the other party without any terms and conditions. This type of assignment is generally done for raising loans against life insurance policies.

2. Conditional Assignment:

As the name suggests, under conditional assignment, the assignor transfers the rights to the assignee depending on the terms and conditions. So, the policy is assigned only if the conditions are fulfilled.

What are the key points to note about an Assignment?

The assignment of the life insurance policy transfers only the ownership and not the risk associated with it.

The assignment may lead to cancellation of the nomination only when it is done in favour of the insurance company due to the policy loan.

The policyholder can assign any policy except a pension plan and a Married Women's Property Act (MWP).

In order to effect the assignment, a policy contract endorsement is required.

What are the key differences between Nomination and Assignment?

To conclude:

The basic difference between Nomination and Assignment is the purpose for which it is undertaken. While a nomination helps in protecting the interest of the policyholder and insurer in providing the claim benefits under a life insurance policy, an assignment helps in protecting the interest of an assignee for availing of the financial benefits under a life insurance policy. Knowing all such terms will help you choose the best-suited option for you and make the most of your life insurance policy.

Warm Regards, Ketki Jadhav Content Writer

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What is Assignment and Nomination in Life Insurance?

‘Assignment’ and ‘Nomination’ are two most common terms used in a life insurance policy document. Let us understand the importance of these two terms in-detail.

By Future Generali. Updated On Oct 06, 2022

Your life insurance policy is a contract between you (insured) and the insurance company (insurer). The contract is filled with jargon. To the extent possible, we must understand all the terms mentioned in the policy bond (certificate). ‘Assignment’ and ‘Nomination’ are two most common terms used in the insurance world.

For instance, in the event that you plan to apply for a home loan, your home loan provider will surely use these terms. Hence, it is best to be sure and understand exactly what the terms mean before you make a decision to buy the policy.

What is assignment in life insurance?

A life insurance policy can be assigned when rights of one person are transferred to another. The rights to your insurance policy can be transferred to someone else for various reasons. The process is known as assignment.

An “assignor” (policyholder) is the person who assigns the insurance policy. An “assignee” is the person to whom the policy rights have been transferred, i.e. the person to whom the policy has been assigned.

In the event rights are transferred from an Assignor to an Assignee, the rights of the policyholder are canceled, and the Assignee becomes the owner of the insurance policy.

People often assign their life insurance policies to banks. A bank becomes the policy owner in this case, while the original policyholder continues to be the life assured whose death may be claimed by either the bank or the policy owner.

Types of Assignment

There are two ways to assign an insurance policy. They are as follows:

1. Absolute Assignment

During this process, the rights of the assignor (policyholder) will be completely transferred to the assignee (person to whom the policy rights have been transferred). It is not subject to any conditions.

As an example, Mr. Rajiv Tripathi owns a Rs 1 Crore life insurance policy. Mr. Tripathi wants to gift his wife this policy. Specifically, he wants to make “absolute assignment” of the policy in his wife's name, so that the death benefit (or maturity proceeds) can be paid directly to her. After the absolute assignment has been made, Mrs. Tripathi will own this policy, and she will be able to transfer it to someone else again.

2. Conditional Assignment

As part of this type of assignment, certain conditions must be met before the transfer of rights occurs from the Assignor to the Assignee. The Policy will only be transferred to the Assignee if all conditions are met.

For instance, a term insurance policy of Rs 50 Lakh is owned by Mr. Dinesh Pujari. Mr. Pujari is applying for a home loan of Rs 50 Lakh. For the loan, the banker asked him to assign the term policy in their name. To acquire a home loan, Mr. Pujari can assign the insurance policy to the home loan company. In the event of Mr. Pujari’s death (during the loan tenure), the bank can collect the death benefit and get their money back from the insurance company.

Mr. Pujari can get back his term insurance policy if he repays the entire amount of his home loan. As soon as the loan is repaid, the policy will be transferred to Mr. Pujari.

In the event that the insurer receives a death benefit that exceeds the outstanding loan balance, the bank will be paid from the difference between the death benefit and the loan and the balance will be paid directly to the nominee. In the above example, the remaining amount (if any) will be paid to Mr. Pujari’s beneficiaries (legal heirs/nominee).

Key Points to know Note About Assignment

In regards to the assignment, the following points should be noted:

• A policy assignment transfers/changes only the ownership, not the risk associated with it. The person assured thus becomes the insured.
• The assignment may lead to cancellation of the nomination in the policy only when it is done in favour of the insurance company due to a policy loan.
• Assignment for all insurance plans except for the pension plan and the Married Women's Property Act (MWP), can be done.
• A policy contract endorsement is required to effect the assignment.

What is nomination in life insurance?

Upon the death of the life assured, the nominee/ beneficiary (generally a close relative) receives the benefits. Policyholders appoint nominees to receive benefits. Under the Insurance Act, 1938, Section 39 governs the nomination process.

Types of Nominees

In a life insurance policy, the policyholder names someone who will receive the benefits in the event of the life assured's death. Here are a few types of nominees:

1. Beneficial Nominees

In accordance with the law, the beneficiary of the claimed benefits will be any immediate family member nominated by the policyholder (like a spouse, children, or parents). Beneficiary nominees are limited to immediate family members of the beneficiary.

2. Minor Nominees

It is common for individuals to name their children as beneficiaries of their life insurance policies. Minor nominees (under the age of 18) are not allowed to handle claim amounts. Hence, the policyholder needs to designate a custodian or appointee. Payments are made to the appointee until the minor reaches the age of 18.

3. Non-family Nominees

Nominees can include distant relatives or even friends as beneficiaries of a life insurance policy.

4. Changing Nominees

It is okay for policyholders to change their nominees as often as they wish, but the latest nominee should take priority over all previous ones.

Key Points to Note About Nomination

In regards to the nomination, the following points should be noted:

• In order to nominate, the policyholder and life assured must be the same.
• In the case of a different policyholder and life assured, the claim benefits will be paid to the policyholder.
• Nominations cannot be changed or modified.
• The policy can have more than one nominee.
• As part of successive nominations, if the life assured appoints person “A” as the first person to receive benefits. Now, in the event of the life assured’s death after person “A” dies, the claim benefits will be given to person “B”. The benefits will be available to Nominee “C” if Nominee “A” and Nominee “B” have passed away.

What is the difference between nomination and assignment?

Let's talk about the differences between assignment and nomination.

Nomination and Assignment serve different purposes. The nomination protects the interests of the insured as well as an insurer in offering claim benefits under the life insurance policy. On the other hand, assignment protects the interests of an assignee in availing the monetary benefits under the policy. The policyholder should be aware of both of them before buying life insurance.

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The Role of Nomination and Assignment in Life Insurance Policies

Table of Contents

Introduction

Life insurance is a vital financial tool that provides a safety net for our loved ones in times of need. While choosing the right policy is crucial, understanding the nuances of nomination and assignment is equally important. These two elements play a pivotal role in ensuring that the benefits of the life insurance policy are seamlessly transferred to the intended beneficiaries.

Nomination in a life insurance policy refers to the act of appointing a person or persons who will receive the policy proceeds in the event of the policyholder’s demise. It is a simple yet powerful way to express one’s wishes regarding the distribution of the financial benefits.

The nominee can be a family member, a friend, or anyone chosen by the policyholder. In Insurance it is important to define the Nominee as the one who suffer financial loss in the absence of the insured person. During the policy application process, the policyholder has the option to specify the percentage of the sum assured that each nominee is entitled to receive. This ensures a clear and unambiguous distribution of the policy benefits, reducing the chances of disputes among family members.

One of the key advantages of nomination is the expeditious settlement of claims. In the absence of a nominee, the legal heirs may have to go through a lengthy and complicated legal process to establish their claim. Nomination simplifies this process, allowing the insurer to release the funds directly to the nominee, facilitating a smoother transition of financial support.

While nomination dictates who will receive the policy proceeds, assignment empowers the policyholder to transfer the rights and benefits of the policy to another person or entity during their lifetime. This process allows for a more dynamic and flexible approach to managing financial assets.

Assignment can be either conditional or absolute. Conditional assignment involves transferring the benefits to another party with the condition that the rights will revert to the policyholder under specific circumstances. On the other hand, absolute assignment permanently transfers the rights and benefits to another individual or entity, irrevocably changing the ownership of the policy.

One of the common reasons for assignment is to secure a loan. Policyholders can assign their life insurance policy to a lender as collateral, providing a layer of security that benefits both parties. In the unfortunate event of the policyholder’s demise before repaying the loan, the outstanding amount is deducted from the policy proceeds, and the remaining sum is disbursed to the nominee.

Nomination and assignment are not mutually exclusive; in fact, they can complement each other to serve the policyholder’s specific needs. For instance, a policyholder can nominate a family member as the primary beneficiary while assigning the policy to a trust for estate planning purposes.

Understanding the roles of nomination and assignment empowers policyholders to tailor their life insurance policies to their unique circumstances. Regular reviews and updates to nomination details ensure that the policy aligns with the policyholder’s current wishes and financial objectives.

In conclusion, nomination and assignment are integral aspects of life insurance policies that go beyond the conventional perception of safeguarding loved ones. These tools empower policyholders to exercise control over the distribution of benefits and customize their policies to suit changing life situations. As such, a thoughtful approach to nomination and assignment can enhance the efficacy of life insurance as a robust financial planning tool.

By- Shilpa Arora

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Assignment in Insurance Policy | Meaning | Explanation | Types

Table of Contents

• 1 What is Assignment in an Insurance Policy?
• 2 Who can make an assignment?
• 3 What happens to the ownership of the policy upon Assignment?
• 4 Can assignment be changed or cancelled?
• 5 What happens if the assignment dies?
• 6 What is the procedure to make an assignment?
• 7 Is it necessary to Inform the insurer about assignment?
• 8 Can a policy be assigned to a minor person?
• 9 Who pays premium when a policy is assigned?
• 10.1 1. Conditional Assignment
• 10.2 2. Absolute Assignment

What is Assignment in an Insurance Policy?

Assignment means a complete transfer of the ownership of the policy to some other person. Usually assignment is done for the purpose of raising a loan from a bank or a financial institution .

Assignment is governed by Section 38 of the Insurance Act 1938 in India. Assignment can also be done in favour of a close relative when the policyholder wishes to give a gift to that relative. Such an assignment is done for “natural love and affection”. An example, a policyholder may assign his policy to his sister who is handicapped.

Who can make an assignment?

A policyholder who has policy on his own life can assign the policy to another person. However, a person to whom a policy has been assigned can reassign the policy to the policyholder or assign it to any other person. A nominee cannot make an assignment of the policy. Similarly, an assignee cannot make a nomination on the policy which is assigned to him.

What happens to the ownership of the policy upon Assignment?

When a policyholder assign a policy, he loses all control on the policy. It is no longer his property. It is now the assignee’s property whether the policyholder is alive or dead, the assignee alone will get the policy money from the insurance company.

If the assignee dies, then his (assignee’s) legal heirs will be entitled to the policy money.

Can assignment be changed or cancelled?

An assignment cannot be changed or cancelled. The assignee can of course, reassign the policy to the policyholder who assigned it to him. He can also assign the policy to any other person because it is now his property. We can think of a bank reassigning the policy to the policyholder when their loan is repaid.

What happens if the assignment dies?

If the assignee dies, the assignment does not get cancelled. The legal heirs of the assignee become entitled to the policy money. Assignment is a legal transfer of all the interests the policyholder has in the policy to the assignee.

What is the procedure to make an assignment?

Assignment can be made only after issue of the policy bond. The policyholder can either write out the wording on the policy bond (endorsement) or write it on a separate paper and get it stamped. (Stamp value is the same, as the stamp required for the policy — Twenty paise per one thousand sum assured). When assignment is made by an endorsement on the policy bond, there is no need for stamp because the policy is already stamped.

Is it necessary to Inform the insurer about assignment?

Yes, it is necessary to give information about assignment to the insurance company. The insurer will register the assignment in its records and from then on recognize the assignee as the owner of the policy. If someone has made more than one assignment, then the date of the notice will decide which assignment has priority. In the case of reassignment also, notice is necessary.

Can a policy be assigned to a minor person?

Assignment can be made in favour of a minor person. But it would be advisable to appoint a guardian to receive the policy money if it becomes due during the minority of the assignee.

Who pays premium when a policy is assigned?

When a policy is assigned normally, the assignee should pay the premium, because the policy is now his property. In practice, however, premium is paid by the assignor (policyholder) himself. When a bank gives a loan and takes the assignment of a policy a security, it will ask the assignor himself to pay the premium and keep it in force. In the case of an assignment as a gift, the assignor would like to pay the premium because he has gifted the policy.

Types of assignment

Assignment may take two forms:

• Conditional Assignment.
• Absolute Assignment.

1. Conditional Assignment

It would be useful where the policyholder desires the benefit of the policy to go to a near relative in the event of his earlier death. It is usually effected for consideration of natural love and affection. It generally provides for the right to revert the policyholder in the event of the assignee predeceasing the policyholder or the policyholder surviving to the date of maturity.

2. Absolute Assignment

This assignment is generally made for valuable consideration. It has the effect of passing the title in the policy absolutely to the assignee and the policyholder in no way retains any interest in the policy. The absolute assignee can deal with the policy in any manner he likes and may assign or transfer his interest to another person.

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