Comparison: Assignment Vs Nomination In Life Insurance
Updated On Jun 18, 2021
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Life insurance policies are long-term contracts between an insurance policyholder and an assurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of an insured person in exchange for a premium paid by the policyholder during their lifetime. The uncertain nature of the benefits makes it important to define the beneficiaries. In this article, we will talk about two important terms - Nomination and Assignment in life insurance.
What is Nomination in Life Insurance?
The nomination is a right given to the policyholder who appoints a person (or persons) to receive the benefits in case of a death claim. The death claim means if a person who is insured dies, then the person who is nominated will receive the policy proceeds. The person who is nominated is called “nominee”.
The nomination comes under Session 39 of the Insurance Act, 1938. The person who wants to get insured must have reached the age of 18 to make a nomination. In case, the nominated person is minor, a major must be specified during the process of nomination to receive the money on behalf of the minor nominee. The nomination is a part of life insurance.
When Can I Make A Life Insurance Nomination?
Nomination can be made when the policy is purchased or any time before the term of the policy expires. During the term of the policy, the policyholder can also change the nominee. If the policyholder is alive when the policy matures or if the nominee dies before the policy matures, the policy amount is paid to the policyholder or his or her legal heir or representative.
The nominee details should be mentioned by the person who is getting life insurance. The details of the nominee include full name, age, address the relationship of the nominee with the life assured. The person getting life insurance can have multiple persons as nominees.
In the case of multiple nominees, the shares of each nominee must be specified in the proposal by the person getting insured, in percentage terms. The policyholder can change the nomination anytime and as many times as he wants. It can be done by using a 'change of nomination form' from the life insurance company. The nominee only comes into the picture after the death of the life assured, where he can claim the benefits under the policy.
What is Assignment in Life Insurance?
As the term suggests, assignment means the legal transfer of rights of the policy from the policyholder (insured) to the person to whom it is assigned. 'Assignor' is the policyholder who transfers the title, and 'Assignee' is the person who takes the title from the assignor. The assignee receives the benefits that are mentioned in the insurance agreement. Generally, an assignment is done for the cause of love and care of the policyholder to anyone of the family members or friends.
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An assignment can also be done to a third party in case of other reasons. The assignment is of two types conditional and absolute. Under the absolute assignment, all the rights, title, and interest which the assignor has in the policy passes on to the assignee without reversion to the assignor or his estate in any event. Under the conditional assignment, the assignor and the assignee may agree that on the happening of an event that does not depend on the will of the assignor, the assignment will be suspended or called off, wholly or in part.
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When Can I Make An Assignment Under Life Insurance?
One can typically come across an assignment where the policyholder tries to use the life insurance policy as surety against a loan he intends to raise. However, one must note that the assignment must be in writing and a notice to that effect must be given to the insurer. The assignee acquires the complete title of the policy and can sue under the policy. He can further assign the policy and can surrender the policy if he so desires. The assignment once in effect cannot be canceled.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.