No, in an assignment, when you assign your policy to somebody (assignee), the nomination gets cancelled by your insurance provider. However, if the assignment is temporary, for instance, if you owe loan repayment to the bank, then the policy rights will transfer back to you once you repay those loans.
Difference Between Nomination Vs Assignment in Life Insurance Explained
Nomination and assignment are two critical terms that are frequently used in life insurance. Therefore, understanding these terms will help you grasp the policy you purchase more efficiently.
These two terms are associated with ownership. Hence, to avoid making any mistakes in your policy, you must learn the difference between nomination and assignment.
What Is Nomination in Life Insurance?
Nomination is a crucial step when purchasing life insurance policies. It is regulated as per Insurance Act, 1938, Section 39. You can select a member of your family who gets your policy benefits when the time comes. For instance, if you choose your spouse as your nominee, they will be eligible to claim death benefits under unfortunate circumstances.
Moreover, your insurer will only deem the selected nominee eligible for the insurance benefits. So, no other person can make that claim.
What Is Assignment in Life Insurance?
Assignment in life insurance is a process of transferring the privileges of the policyholder from one person to another. That means the former policyholder shall have no more authority or control over the policy once it is assigned to a new owner.
This can occur for multiple reasons, such as to repay bank debt. Many people assign their policies to the bank while they continue to remain life assured. After their death, the bank (policyholder) can claim the death benefit.
Furthermore, here "assignor" is the one who is transferring/assigning their rights. So, the person to whom the policy is being assigned will be known as an "assignee".
What Are the Differences Between Assignment and Nomination in a Life Insurance Policy?
To understand the process of a life insurance policy, understanding what nomination and assignment are vital.
So, to learn about their contrasting features, here is a table demonstrating the key points of nomination vs assignment:
Points of Comparison
Nominees are selected by you (the policyholder) to get the benefits of your life insurance policy.
You can transfer your life insurance ownership rights to the assignee. This transfer can be with or without any conditions.
The ownership of your policy remains unchanged in the nomination process.
The ownership of your policy is changed through the assignment process from you (assignor) to the assignee.
To assign one or more persons to enjoy the benefits of your life insurance in the event of your unfortunate demise.
To transfer all the rights and control of the policy to another person or entity for various reasons.
The claim benefits will be received by the nominee when the policyholder passes away.
After the death of the life insured, their assignee will enjoy the claim benefits; in this case, the assignee also becomes a nominee of the policy.
There is no need for a witness in nomination. However, in the case of minor nominees, you need to choose an appointee who handles the claim amount under their name until the nominee is 18.
For the assignment process to be valid, there is a need for at least one witness.
The nomination process is not a legal endorsement. Thus it does not require the authorisation of the insurer or any witnesses. You can simply set or change your nominee through mail or letter.
An assignment is a legal process. Therefore, it needs to be changed only by authorisation of the insurer on the original policy bond.
Your nominees will be entitled to receive death benefits in case of an unfortunate occurrence.
Your assignee will receive the policy money.
What Are the Types of Nominees in Life Insurance?
A nominee is a person from your family or close relative who you choose to secure with your life insurance policy. Generally, there are six types of nominees, namely:
- Beneficial Nominees: As per the regulation of the Insurance Act 2015, beneficial nominees include someone who is a member of your immediate family. This means the nominee you choose will be limited to any of your spouses, parents or children.
- Minor Nominees: As a parent, you would like to secure your children's lives, especially when you are not around. So, under minor nominees, you can name your children as beneficiaries. However, they will not be eligible to handle these claims themselves. Hence you must also appoint a custodian or appointee who can claim the benefits till your child reaches 18 years.
- Non-Family Nominees: Under this category, you can name anyone from your distant relatives or friends as the nominee of your life policy.
- Changing Nominees: Changing nominees is the provision by which you can change your beneficiary as many times as you want throughout the policy period. However, priority will be given to the latest nominee you choose.
- Multiple Nominees: In this type of nomination, you can select two or more people as beneficiaries. This works in a slightly different manner than the other types. This is because; the share of your policy’s total benefit amount is divided between the nominees you chose. You can decide on the percentage of benefit each receives when filling out your nomination form. If not, the total amount gets equally divided among all your nominees.
- Successive Nominee: Having consecutive nominations is a wise option considering unpredictable incidents that may take place in the future. In this type, you can choose more than one and up to 3 nominees, but successively. For instance, if you choose three nominees in X, Y and Z succession, your insurance company will offer the benefit to X when the time comes. In case X does not survive either, the amount will go to Y and so on.
What Are the Types of Assignments in Life Insurance?
There are two types of assignments in life insurance plans:
- Absolute Assignment: An absolute assignment is where you transfer the ownership of the policy to an assignee without any terms or conditions. Generally, people opt for this assignment for two reasons, to display affection for someone or in case they have to repay loans to a bank.
- Conditional Assignment: In this assignment, you can assign your life insurance policy to an assignee following specific terms and conditions. Consequently, the transfer of ownership will only occur if these conditions are met.
Nomination and assignment are essential processes associated with the ownership of life insurance plans and their benefits. Nomination is a simple process of choosing one or more beneficiaries to receive the claim benefits of your plan.
Conversely, assignment is a legal process by which you can shift the ownership and rights of your plan to someone else. Both of these processes have their benefits and fulfil a specific purpose. Therefore, this article has demonstrated the critical differences between nomination and assignment to give you a clearer and contrasting idea.
FAQs about Nomination Vs Assignment in Life Insurance Policy
The endorsement in an assignment is where you sign the endorsement form to transfer your rights to the assignee. Furthermore, to complete the process, you need a witness to sign the documents. Next, you mention the reason for your transfer and the terms and conditions, if any. In addition, the details of the assignee are also required to be entered in the assignment.
Assigning nominees is extremely important in the case of life insurance plans to ensure that your dependents are financially covered for rainy days. Nomination gives you the control as a policyholder to decide who the money goes to in case of your unfortunate demise. Without it, your family may face a long-drawn legal process to determine who the money goes to.
Other Important Features of Life Insurance
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
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