Assignment of Life Insurance Policy
An Insurance policy is a property. It can be sold, mortgaged, charged, gifted or bequeathed.
In India, the assignment is governed by Section 38 of the Insurance Act. On execution of the assignment, the assignee gets all rights, title and interest in respect of property assigned and becomes the owner of the policy, subject to the provision that the assignee cannot have a better title than the assignor.
This last provision is very important. It means simply that the assignee would not be eligible to get a claim that for some reason is rejected to the assured. The assignment requires that the parties be competent to contract and are not subject to legal disqualifications.
The policyholder is the assignor and on whom the policy is assigned is the assignee.
There are two types of assignments.
- Absolute assignment
- Conditional Assignment
All rights, title, and interest, which the assignor has in the policy are transferred to the assignee without reversion to the former or his/her estate in any event.
The policy thus vests absolutely with the assignee. The latter can deal with the policy in whatever manner he or she likes, without the consent of the assignor.
The conditional assignment provides that the policy shall revert to the life assured on his or her surviving the date of maturity or on the death of the assignee.
Conditions for Valid Assignment
Let us now look at the conditions that are necessary for a valid assignment.
- The person executing it (the assignor) must have absolute right and title or assignable interest to the policy being assigned
- It is necessary that the assignment be supported by valuable consideration, which may include love and affection
- It is imperative that the assignment is not opposed to any law in force. For example, the assignment of a policy to a foreign national residing in another country may contravene exchange control regulations
- The assignee can do another assignment, but cannot do nomination because assignee is not the life assured
How is the assignment done?
The assignment has to be in writing and must be signed and attested by at least one witness.
The fact of transfer of title has to be specifically set forth in the form of an endorsement on the policy. It is also necessary that the policyholder must give notice of the assignment to the insurer.
Unless such notice in writing is received by the insurer, the assignee would not have any right of title to the policy.
On receipt of the policy document for endorsement and notice, the life Insurance may affect and register the assignment.
It must be noted that while registering the assignment, the company does not take any responsibility or express any opinion about its validity or legal effect.
The date of the assignment as recorded in the books of the life Insurance company would be the date on which the assignment and notice thereof have been received by its concerned office.
If the notice and the assignment were to be received on separate dates, the date of the one received later will be deemed as the date of registration.
Reassignment of Policy
An assignee may reassign interest in the policy to the policyholder/life assured during the currency of the policy.
On such reassignment, the latter may be advised to execute a fresh nomination or assignment for expeditious settlement of the claim.
Again, in the case of conditional assignment, the title to the policy would revert to the life assured in the event of the death of the assignee. On the other hand, if the assignment were absolute, the title would pass to the estate of the deceased assignee.