‘Assignment’ of life insurance policy means transferring the policyholder’s rights to someone else. Only the policyholder who had the right or title to the policy can make assignment. The person who makes assignment is called ‘assignor’ and the one to whom the rights are being transferred is called ‘assignee’.
1. Legal Aspect of Assignment
In terms of the Transfer of Property Act, 1882, a life insurance policy is a property and can be sold, mortgaged, charged, gifted or bequeathed like any other property.
It is section 38 of the Insurance Act,1938 which deals with ‘assignment’.
As per provision of this section –
How to make assignment : assignment can be made by way of –
• An endorsement on the policy itself (in this case no stamp duty required) or
• A separate document called ‘deed of assignment’ (a separate deed has to be appropriately stamped).
• Assignment – whether on the policy or by a separate deed – is to be assigned by the transferor or his agent duly authorised by the transferor.
• A witness must attest the signature.
• It should be sent to the insurance company along with a notice.
• A joint life policy can be assigned in which case the assignment will be jointly executed.
2. Effect of Assignment
An assignment changes the title to the policy. All rights, title and interest of the assignor in the policy are transferred to the assignee.
• Assignee becomes title holder of the policy. By virtue of assignment, he is absolute owner of the policy.
• Assignee is not free from assignor’s contractual obligations under the policy.
• Assignee can deal with the policy in any manner he/her likes. He need not take any instructions or a consent from the assignor.
Assignee can assign the policy further to another person.
Assignee can also take loan under the policy.
• Assignee can reassign the policy back to the assignor.
3. There are two types of Assignment :
• Absolut Assignment
• Conditional Assignment
In Conditional Assignment, the rights in the policy revert to the assignor on happening of the specified condition. Examples : Specified condition can be that if the assignee predeceased the life assured or the life assured survives the date of maturity, the assignment will become ineffective and all rights, title and interest in the policy revert to the life assured.
Policy on another person’s life
• When a person buys policy on the life of another, all rights, title and interest in the policy vest in the buyer. The life assured has no right and cannot deal with the policy unless the buyer assigns the policy in his favour.
• Life assured under a Children’s Deferred Assurance plan can assign the policy after the vesting date i.e. after the child attains the age of majority.
4. Miscellaneous important points :
• Assignor should be major and competent to contract.
• Consideration is a must for assignment. It may be some value or a natural love and affection.
• Assignment becomes effective from the date it is executed.
• Assignment involving part of the policy is considered bad in law.
• As regard it’s effectiveness against the insurer, it is only when the notice is delivered.
• In the event of more than one assignment, priority is determined in the same order as the notices were given to the insurer.
• In the event of death of the assignee, assignment does not automatically come to an end. Policy money would be paid to legal heirs of the assignee.
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