Section 38: Assignment and transfer of insurance policies.

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[38. Assignment and transfer of insurance policies. --(1) A transfer or
assignment of a policy of insurance, wholly or in part, whether with or without
consideration, may be made only by an endorsement upon the policy itself or by
a separate instrument, signed in either case by the transferor or by the assignor or
his duly authorised agent and attested by at least one witness, specifically setting
forth the fact of transfer or assignment and the reasons thereof, the antecedents of
the assignee and the terms on which the assignment is made.
(2) An insurer may, accept the transfer or assignment, or decline to act upon any
endorsement made under sub-section (1), where it has sufficient reason to believe
that such transfer or assignment is not bona fide or is not in the interest of the
policyholder or in public interest or is for the purpose of trading of insurance
policy.
(3) The insurer shall, before refusing to act upon the endorsement, record in
writing the reasons for such refusal and communicate the same to the
policyholder not later than thirty days from the date of the policyholder giving
notice of such transfer or assignment.
(4) Any person aggrieved by the decision of an insurer to decline to act upon such
transfer or assignment may within a period of thirty days from the date of receipt
of the communication from the insurer containing reasons for such refusal, prefer
a claim to the Authority.
(5) Subject to the provisions in sub-section (2), the transfer or assignment shall
be complete and effectual upon the execution of such endorsement or instrument
duly attested but except, where the transfer or assignment is in favour of the
insurer, shall not be operative as against an insurer, and shall not confer upon the
transferee or assignee, or his legal representative, any right to sue for the amount
of such policy or the moneys secured thereby until a notice in writing of the
transfer or assignment and either the said endorsement or instrument itself or a
copy thereof certified to be correct by both transferor and transferee or their duly
authorised agents have been delivered to the insurer:
Provided that where the insurer maintains one or more places of business in India,
such notice shall be delivered only at the place where the policy is being serviced.
(6) The date on which the notice referred to in sub-section (5) is delivered to the
insurer shall regulate the priority of all claims under a transfer or assignment as
between persons interested in the policy; and where there is more than one
instrument of transfer or assignment the priority of the claims under such
instruments shall be governed by the order in which the notices referred to in sub-
section (5) are delivered:
Provided that if any dispute as to priority of payment arises as between assignees,
the dispute shall be referred to the Authority.
(7) Upon the receipt of the notice referred to in sub-section (5), the insurer shall
record the fact of such transfer or assignment together with the date thereof and
the name of the transferee or the assignee and shall, on the request of the person
by whom the notice was given, or of the transferee or assignee, on payment of
such fee as may be specified by the regulations, grant a written acknowledgement
of the receipt of such notice; and any such acknowledgement shall be conclusive
evidence against the insurer that he has duly received the notice to which such
acknowledgement relates.
(8) Subject to the terms and conditions of the transfer or assignment, the insurer
shall, from the date of the receipt of the notice referred to in sub-section (5),
recognise the transferee or assignee named in the notice as the absolute transferee
or assignee entitled to benefit under the policy, and such person shall be subject
to all liabilities and equities to which the transferor or assignor was subject at the
date of the transfer or assignment and may institute any proceedings in relation
to the policy, obtain a loan under the policy or surrender the policy without
obtaining the consent of the transferor or assignor or making him a party to such
proceedings.
Explanation.-- Except where the endorsement referred to in sub-
section (1) expressly indicates that the assignment or transfer is conditional in
terms of sub-section (10) hereunder, every assignment or transfer shall be
deemed to be an absolute assignment or transfer and the assignee or transferee,
as the case may be, shall be deemed to be the absolute assignee or transferee
respectively.
(9) Any rights and remedies of an assignee or transferee of a policy of life
insurance under an assignment or transfer effected prior to the commencement of
the Insurance Laws (Amendment) Act, 2015 (5 of 2015) shall not be affected by
the provisions of this section.
(10) Notwithstanding any law or custom having the force of law to the contrary,
an assignment in favour of a person made upon the condition that--
(a) the proceeds under the policy shall become payable to the policyholder or the
nominee or nominees in the event of either the assignee or transferee
predeceasing the insured; or
(b) the insured surviving the term of the policy, shall be valid:
Provided that a conditional assignee shall not be entitled to obtain a loan on the
policy or surrender a policy.
(11) In the case of the partial assignment or transfer of a policy of insurance under
sub-section (1), the liability of the insurer shall be limited to the amount secured
by partial assignment or transfer and such policyholder shall not be entitled to
further assign or transfer the residual amount payable under the same policy.]
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.

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.
o 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.
o Example: Mr. Mallya owns a term insurance policy of 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.
o 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.
o 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.
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.
What Is Subrogation?

Subrogation is a term describing a right held by most insurance carriers to

legally pursue a third party that caused an insurance loss to the insured. This is
done in order to recover the amount of the claim paid by the insurance carrier to
the insured for the loss.

Understanding Subrogation

Subrogation literally refers to the act of one person or party standing in the place
of another person or party. It effectively defines the rights of the insurance
company both before and after it has paid claims made against a policy. Also, it
makes easier the process of obtaining a settlement under an insurance policy.

When an insurance company pursues a third party for damages, it is said to "step
into the shoes of the policyholder," and thus will have the same rights and legal
standing as the policyholder when seeking compensation for losses. If the
insured party does not have the legal standing to sue the third party, the insurer
will also be unable to pursue a lawsuit as a result.

How Subrogation Works

In most cases, an individual’s insurance company pays its client’s claim for
losses directly, then seeks reimbursement from the other party, or their insurance
company. In such cases, the insured receives prompt payment, and then the
insurance company may pursue a subrogation claim against the party at fault for
the loss.

Insurance policies may contain language that entitles an insurer, once losses are
paid on claims, to seek recovery of funds from a third party if that third party
caused the loss. The insured does not have the right to file a claim with the insurer
to receive the coverage outlined in the insurance policy or to seek damages from
the third party that caused the losses.

Subrogation in the insurance sector, especially among auto insurance policies,

occurs when the insurance carrier takes on the financial burden of the insured as
the result of an injury or accident payment and seeks repayment from the at-fault
party.

Example of Subrogation

One example of subrogation is when an insured driver's car is totaled through

the fault of another driver. The insurance carrier reimburses the covered driver
under the terms of the policy and then pursues legal action against the driver at
fault. If the carrier is successful, it must divide the amount recovered after
expenses proportionately with the insured to repay any deductible paid by the
insured.

Subrogation is not only relegated to auto insurers and auto policyholders.

Another possibility of subrogation occurs within the health care sector. If, for
example, a health insurance policyholder is injured in an accident and the insurer
pays $20,000 to cover the medical bills, that same health insurance company is
allowed to collect $20,000 from the at-fault party to reconcile the payment.

Subrogation Process for the Insured

Luckily for policyholders, the subrogation process is very passive for the victim
of an accident from the fault of another party. The subrogation process is meant
to protect insured parties; the insurance companies of the two parties involved
work to mediate and legally come to a conclusion over the payment.

Policyholders are simply covered by their insurance company and can act
accordingly. It benefits the insured in that the at-fault party must make a payment
during subrogation to the insurer, which helps keep the policyholder's insurance
rates low.

In the case of an accident, it is still important to stay in communication with the

insurance company. Make sure all accidents are reported to the insurer in a timely
manner and let the insurer know if there should be any settlement or legal action.
If a settlement occurs outside of the normal subrogation process between the two
parties in a court of law, it is often legally impossible for the insurer to pursue
subrogation against the at-fault party. This is due to the fact most settlements
include a waiver of subrogation.

Benefits of Subrogation

In insurance, subrogation allows your insurer to recover the costs associated with
a claim, such as medical bills, repairs costs, and your deductible, from the at-
fault party's insurer (assuming you were not at-fault). This means that both you
and your insurer can recoup the costs of damage or harm caused by somebody
else.

Waivers of Subrogation

A waiver of subrogation is a contractual provision whereby an insured waives

the right of their insurance carrier to seek redress or seek compensation for losses
from a negligent third party. Typically, insurers charge an additional fee for this
special policy endorsement. Many construction contracts and leases include a
waiver of the subrogation clause.

Such provisions prevent one party’s insurance carrier from pursuing a claim
against the other contractual party in an attempt to recover money paid by the
insurance company to the insured or to a third party to resolve a covered claim.
In other words, if subrogation is waived, the insurance company cannot "step
into the client's shoes" once a claim has been settled and sue the other party to
recoup their losses. Thus, if subrogation is waived, the insurer is exposed to
greater risk.

Does Subrogation Affect the Insured Victim?

The subrogation process, which is meant to protect insured parties, is very

passive for the insured victim of an accident from the fault of another insured
party. The insurance companies of the two parties involved work to mediate and
legally come to a conclusion over the payment. Policyholders are simply covered
by their insurance company and can act accordingly. It benefits the insured in
that the at-fault party must make a payment during subrogation to the insurer,
which helps keep the policyholder's insurance rates low.

What is a Waiver of Subrogation?

A waiver of subrogation is a contractual provision whereby an insured party

waives the right of their insurance carrier to seek redress or seek compensation
for losses from a negligent third party.

Typically, insurers charge an additional fee for this special policy endorsement.
Many construction contracts and leases include a waiver of the subrogation
clause. This prevents the insurance company from "stepping into the client's
shoes" once a claim has been settled and suing the other party to recoup their
losses. Thus, if subrogation is waived, the insurer is exposed to greater risk.

What Is the Broad Legal Definition of Subrogation?

Subrogation, in the legal context, refers to when one party takes on the legal
rights of another, especially substituting one creditor for another. Subrogation
can also occur when one party takes over another's right to sue.