Do you know about absolute and conditional assignment of your insurance policy.
There are two types of assignment - Absolute Assignment and Conditional Assignment
Absolute Assignment of the policy means the policy rights are completely transferred to the beneficiary. For example, Mr. Shah buys a life insurance policy of Rs. 50 lakhs. If he makes an absolute assignment of the policy to his wife, the maturity proceeds or death benefit is directly given to her unconditionally. Here, Mr. Shah is the 'assignor' and Mrs. Shah is the 'assignee'. Liabilities if any, also get transferred to the assignee.
In case of Conditional Assignment, the policy benefits are transferred from the assignor to the assignee based on fulfilment of certain conditions. It can also be a transfer for a certain time frame. For example, I have a life insurance policy which I provide as collateral to a bank to avail of a loan. The bank gets a right on the benefits of the policy till the loan is repaid. Once the loan is repaid, the life insurance policy is transferred in my name again. In case the loan is unpaid, the proceeds of the life insurance will be given to the bank. A company might buy an insurance policy for a newly hired employee who is on probation, but transfer the benefits only after the employee becomes a permanent employee. Such types of policy assignment is conditional assignment.
The assignment can be made with the policy or separately. If it is made with the policy, it has to be mentioned in the policy bond and endorsed. If it is done separately, an Assignment Deed' has to be made and stamp duty has to be paid. Most insurers have an assignment form that should serve the purpose. It should be attested by the assignor and a witness. The insurer provides an assignment form which has to be completed.
Important Points Regarding Policy Assignment -
- If the assignee dies, the legal heirs of the assignee are entitled to the policy benefits.
- Assignment can be made to a minor person. But it is better to appoint a guardian.
- Assignment is different from nomination. A nominee does not have any rights but only receives the death benefit.
- Endowment policies, ULIPs and money back policies can be used for assignment for business loans. A term insurance plan with tenure more than the loan period is usually required for assignment in case of a home loan.
- The insurer has to be informed about the assignment.
Assignment is a useful tool that can be used to provide security to a loved one or avail of loan. Assignment should be done after careful consideration so that no one misuses the policy.