Tamil Nadu Dr.

Ambedkar Law University

Assignment and Nomination in Life Insurance

PRESENT BY
SURYA.S.MENON
HD18138
 Introduction to 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.
 Types of Assignment
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.
 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.
 Types of Nominees

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.
 Difference between Nomination and Assignment

Defining parameters Assignment Nomination

Source The endorsement is made on The nominees' names are

the contract policy. mentioned.

Policy Ownership It involves transferring Policy ownership does not

rights/ownership from the change under nomination, it
assignor (policyholder) to the continues with the
assignee (person/entity). policyholder.

Purpose The life assured will transfer It offers the nominee to avail
all his/her right/ownership of claim benefits in case of death
the policy to another of the life assured.
person/institution.

Consideration The assignment might/might Nomination does not support

not support consideration. consideration.
 Difference between Nomination and Assignment

Defining parameters Assignment Nomination

Witness Without a witness, the It is not required in the

assignment will be considered nomination.
invalid.

Right to sue Assignee has the right to sue The nominee cannot sue the
the assignor of the policy. policyholder of the policy.

Purpose The life assured will transfer It offers the nominee to avail
all his/her right/ownership of claim benefits in case of death
the policy to another of the life assured.
person/institution.

Policy Amount Assignee is entitled to receive The nominee is entitled to

the policy money. avail the claim benefits in case
of death of the life assured
 Conclusion

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.