1/12/24, 2:10 PM What is Assignment and Nomination in Life Insurance?

For instance, in the event that you plan to apply for a home loan, your home loan provider
303 use these terms.
will surely  Hence, it is best to be sure and understand
  the
exactly what
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
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1/12/24, 2:10 PM What is Assignment and Nomination in Life Insurance?

insurance policy to the home loan company. In the event of Mr. Pujari’s death (during the
303
loan tenure), collect the death benefit and get theirmoney back from
the bank can 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

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1/12/24, 2:10 PM What is Assignment and Nomination in Life Insurance?

It is common for individuals to name their children as beneficiaries of their life insurance
303Minor nominees
policies. (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.

Defining
parameters Assignment Nomination

Source The endorsement is made on the The nominees' names are

contract policy. mentioned.

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1/12/24, 2:10 PM What is Assignment and Nomination in Life Insurance?

Defining
303   
parameters Assignment Nomination 
Policy It involves transferring Policy ownership does not
Ownership rights/ownership from the assignor change under nomination, it
(policyholder) to the assignee continues with the
(person/entity). policyholder.

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

Consideration The assignment might/might not Nomination does not support

support consideration. consideration.

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

will be considered invalid. nomination.

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

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

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.

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