No, the assignment of life insurance only involves the transfer of the policy ownership. That means the original policyholder will continue to be the person insured. Moreover, if they fulfil the conditions (in a conditional assignment), the policy will transfer back to them as before.
What Is Assignment in Life Insurance Policy?
While purchasing a life insurance plan, you might encounter several unfamiliar terms, which can make this process even harder to follow. However, understanding these terms and their functions is essential to make an error-free decision while handling your policy.
Assignment is one such necessary process associated with life insurance, dealing with the transfer of ownership of your policy. It is often confused with a nomination, which refers to naming beneficiaries of your contract. Therefore, you must understand the aspects of assignment in a life insurance policy.
What Is Assignment and Assignee in Life Insurance Policy?
Assignment refers to the process of transferring your privileges as a policyholder to another person or entity such as the bank. Once the ownership is transferred, the former policyholder will have no further authority over it. You can assign your policy for various reasons, for instance to someone you love or to your bank in case you owe debt repayment.
Two other terms related to the assignment process are – assignor and assignee.
Assignor: An assignor is the one who is transferring their policy rights to someone else.
Assignee: An assignee is a person or an institution that receives the policy rights and now has complete control over it.
In many cases where people assign their policies to the bank, they remain the life insured, whereas the bank receives the claim benefit after their demise.
What Are the Types of Assignment in Life Insurance Policy?
In an absolute assignment, you can transfer your life insurance policy ownership to another being without any terms and conditions. Here, the assignor can sign over the entire policy as a gift to their loved ones or if they owe an outstanding debt.
After the transfer procedure is complete, the assignee will be responsible for all policy-related decisions, including paying the outstanding premiums and designating nominees.
Suppose you have purchased a ULIP plan to secure your family after you pass away. Now, within a few years, you are in need of urgent financing to support your child’s education.
So, instead of surrendering your policy, you can use it as collateral to seek help from someone. Now you have assigned your insurance plan to a friend (assignee) through an absolute assignment by which your friend can take over all the rights of your policy including paying future premiums.
Condition assignment is a policy where you transfer the life insurance policy rights to an assignee under specific terms and conditions. Therefore, the transfer will only be valid if those conditions are met.
Furthermore, it can also be a temporary transfer, where the policy is transferred back to the assignor once they fulfil the predetermined conditions.
The transfer takes place through a form that mentions the reason and condition of the assignment along with an assigned percentage of the sum assured and who will pay the future premiums.
Suppose you have assigned your life insurance policy under conditional assignment to a bank for which you secured a loan. If you repay the loan within the set time, the bank will transfer the policy rights back to you. However, if you fail to repay the EMIs, the bank can surrender your policy and get their money back.
An assignment is a legal process through which policy ownership transfers from an assignor to an assignee. It can be beneficial under multiple circumstances, especially in a financial emergency. Therefore, before you buy a life insurance plan, understand these features since they can help you in the future.
In addition, the assignment of a life insurance policy can also be used as a present to your loved ones. While nomination is where you directly assign beneficiaries to ensure that your loved ones are protected in your absence.
FAQs about Assignment in Life Insurance Policy:
An endorsement is a document that you (the policyholder) have to sign while transferring your policy rights to an assignee. It also requires the signature of one witness. After this, you will need to mention the reason for the assignment, along with the conditions (if any). Moreover, further details of the assignee also have to be mentioned.
The liabilities of an assignee vary based on the assignment you choose. For instance, your assignee will be responsible for paying future premiums in an absolute one. Also, the right to get maturity benefits will be transferred to them. On the other hand, for conditional assignment, the liabilities and the rights of your assignee will depend on the specified terms and conditions.
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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