Introduction:
The term assignment itself means you assign something to someone else. In term life insurance, the assignment of the policy describes the action of assigning legal rights as well as policy ownership to someone else. The person who assigns the policy is known as an Assignor and the person who has been assigned the policy is known as an Assignee.
Nomination under the insurance contract refers to nominate someone on your behalf in order to collect the benefit in your absence. A person who is trustworthy can be nominated upon the death of a person. The trustworthy person could be from the dead person’s family or close friends. Then that person is the nominee of the policy.
However in most of the cases, people choose their family member as the nominee of the policy but as per the insurance act of 1938, under section 39, the nomination of a particular person is not restricted to a family only. Any person who is considered as trustworthy and any person who will not misuse the policy are considered to be an ideal nominee of that particular policy.
Types of Assignment
There are two types of assignment of policies:
- Absolute assignment: under this particular type of assignment, the assignor is bound to transfer the ownership, title, legal interests and all the rights of the policy to the assignee. This type of transfer of the policy does not include the terms and conditions on the part of the assignee. The exact purpose of the absolute assignment is to repay the debts or to show affection to loved ones.
- Collateral assignment: collateral assignment refers to that particular assignment in which the policyholder assigns the policy on terms and conditions, and the assignee is restricted to avail the benefits of all the terms and conditions. The main purpose of the collateral assignment is to repay loans and liabilities.
Types of Nomination
There are three types of nominations, such as:
- Beneficiary nominee: in this particular nomination a particular person can be made beneficiary to the immediate family members like parents, children, and spouse. The beneficiary will be entitled to receive all the benefits of the policy legally only in case of unfavourable conditions.
- Minor nominee: since it is considered that a minor cannot deal with financial conditions, the guardian of that particular minor has to give the details of their selves only when the policyholder chooses his/her child as the nominee.
- Non-family nominee: a non-family member is that person who does not have blood relation with the policyholder such as close friends, a distant relative, a neighbour, etc. under section 39 of the insurance act of 1938; any trustworthy person can be a policy nominee.
Nomination and Assignment in Life Insurance Plans
As it is already known that insurance is a legal contract between the insurance company who is also called the insurer and the policyholder. An assignee is a person to whom the rights have been transverse to. An example of an absolute assignment is as follows: Mr Bharath owns a life insurance policy of 1 crore and he wants to gift this particular policy to his wife as ‘absolute assignment’ to her name. Once this absolute assignment is made to his wife’s name, she will be the owner of the policy. She also has the right to transfer this policy to someone else.
An example of a conditional assignment is as follows: Ms Supriya owns a term insurance policy of 900,000. She wants a home loan of the same amount. Hence her banker asked her to assign the term policy in their name in order to get the loan. If Supriya meets an untimely death the banker is entitled to enjoy their money. An assignment deed or deed of assignment [DOA] is that deed through which rights can be transferred from one person to another.
Sections and Policies
SECTION 38- ASSIGNMENT AND TRANSFER OF INSURANCE POLICIES
The provisions under section 38 of the Insurance Law Act, 2015. The provisions of this particular section are as follows:
- This policy allows itself to be transferred with or without consideration.
- An assignment has a high chance of being affected by an endorsement upon the policy or by a separate instrument to the insurer.
- The instruments should reflect the assignment and the reasons for the transfer.
- An authorized agent or the transferor should sign the assignment.
- The transferor of the assignment should not be operative against an insurer until prior notice is issued
- The authority has the right to specify the fees that is paid for the transfer
- The insurer is also expected to give a written acknowledgement of receipt of the notice. Such notice acts as evidence for the future.
- The notices shall be delivered only at one place where the policy is being served in order to avoid confusions. This arrangement is made as the insurer is involved in managing more than one business place.
- The insurer has the right to accept or deny acting upon any transfer or endorsement only if it is not bonafide or not in the public interest.
- Before denying the endorsement, the insurer should make a note of the reasons for the same.
SECTION 39- NOMINATION BY POLICYHOLDER
The provisions of this particular section are as follows:
- The policyholder can nominate a person to whom money secured by the policy shall be paid during the death.
- When in case of a minor, the policyholder can appoint any person to receive the money in the event of policyholder’s death during the minority of the nominee.
- Nomination can be made at any time before the maturity of the policy.
- The nomination can be incorporated or endorsed to the insurer.
- The provisions of section 39 are not applicable to any life insurance policy to which section 6 of the Married Women’s Property Act, 1874 applies.
- If the nominee dies before the policyholder, the money is payable to the legal representatives or the holder of succession certificate.
SECTION 45- Policy shall not be called in question on the ground of misstatement after three years
Provisions of this section are as follow:
- Any policy of life insurance shall not be called in question after the expiry of three years from the date of issuance of the policy, the date of commencement of risk, the date of revival, the date rider coming to the policy.
- Silence is not considered to be fraud unless it depends on the circumstances of the case.
- The insurer can call for age proof at any time only if he is entitled.
- No insurer can reject a life insurance policy on the grounds of fraud if the beneficiary can prove that the fraud was true to the best of his knowledge.
Difference between Nomination and Assignment
| NOMINATION | ASSIGNMENT | |
| SOURCE | It is made by listing the names of the nominees. | It is made through an endorsement |
| OWNERSHIP | The policyholder enjoys the ownership always s the ownership does not change. | The ownership does change from the policyholder to the assignee. |
| PURPOSE | The nominee avails all the benefits after the death of the assured. | The assured will transfer all the rights and ownership to another person. |
| WITNESS | Witness is not required in nomination. | A witness is required in case of assignment. |
| RIGHT TO USE | The nominee does not have the right to sue the policyholder. | Assignee has the right to sue the assignor. |
| AMOUNT | The nominee avails all the benefits after the death of the assured. | The assignee avails the money of the policy. |
| CONSIDERATION | There is no concept of considerations under the nomination. | This may or may not have the concept of considerations. |
| THE TITLE | The person who is nominated is called a nominee. | The person to whom the policy is assigned is called as an assignee. |
| NOMINEE OR ASSIGNMENT | It involves beneficial nominee. | It involves assignment and conditional assignment. |
| CLAIMS | The nominee is given the right to use the claim for his or her own purpose only if they are a beneficial nominee. | In this, there is no concept of handing over the claims to another person. |
Assignment of Policies- Impact on Existing Nomination
- According to section 39(4) of the insurance act, 938, the assignment of an insurance policy automatically cancels the nomination.
- Here are the few circumstances under which the assignment does not automatically cancel nomination :
When the policy loan is taken from the life insurer who issues the policy, the policy has to be assigned in favour of the life insurer. Under such circumstances, assignments in favour of the life insurer do not automatically cancel the nomination.
On the other hand, where the policy is assigned by a debtor to creditor acts as collateral security for the loan taken by the policyholder from the assignee.
Conclusion
The nomination and assignments have their own uses and benefits as a separate topic under the insurance contracts. I have gained in-depth knowledge of what exactly is nomination and assignment along with minute differences between them. The differences between them have helped me gain much more understanding of the topic. Nomination protects the interests of the insured and the insurer. Whereas the assignment strives to protect the interests of the assignee in availing all the benefits.
References:
- INSURANCE LAWS IN INDIA- VARDHAMAN MAHAVEER, pg. 32. 54.
- RAJIV JAIN: INSURANCE LAW AND PRACTICE, pg. 44
- https://m.economictimes.com/nomination-and-assignment/articleshow/3320189.cms
- https://accountlearning.com/difference-nomination-assignment/
- https://accountlearning.com/assignment-in-insurance-policy-meaning-explanation-types/
- https://life.futuregenerali.in/life-insurance-made-simple/life-insurance/change-nominee-in-term-insurance
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