What is assignment of a life insurance policy?

Assignment of policy means transfer of policy ownership from the policyholder to another person or entity. The person assigning/transferring the policy is called ‘assignor’ and the person/institution to whom it is assigned is called ‘assignee’.

There are two types of assignment namely absolute assignment and conditional assignment.

Absolute assignment is usually done for valuable consideration, raising a loan or love and affection for family members. The assignor loses all rights over the policy and cannot revoke the assignment. All benefits under the policy are payable to the assignee or his legal heirs if the assignee is not living to receive the benefits. The assignee can deal with the policy the way he chooses to. He may surrender the policy or further re-assign to another person. The policy can be re-assigned by assignee to the assignor.

Usually the assignee is expected to pay the premiums. However, if the purpose of assignment is ‘loan against policy’ then the assignor is responsible to pay premiums. In such cases most insurance companies send renewal intimation notices both to the assignor and the assignee.

Conditional assignment is an assignment which happens subject to certain terms and conditions. For eg: Suresh assigns the policy to his sister Sheetal on the condition that if Suresh outlives the policy tenure the maturity proceeds will be payable to him else the proceeds should be payable to Sheetal.

Some important points to note regarding assignment are as under:

1)      Assignment changes only the policy ownership not the risk under the policy i.e the life insured continues to be the original person insured.

For eg:

1)      Ashok has a policy where he is both the policyholder and the life insured. He assigns the policy to his wife Maya. Post assignment Maya becomes the policyholder, and Ashok continues to be the life insured.

2)      Shiva has a policy where he is the policyholder and his son Deepak is the life insured. Shiva assigns the policy to his wife Reshma. Post assignment Reshma becomes the policyholder and Deepak continues to be the life insured.

2) Assignment leads to cancellation of nomination in the policy except for cases where the assignment is done in favour of the insurance company due to a policy loan.

3) The assignment is effected by way of an endorsement on the policy contract. The assignor is required to submit the assignment request in the prescribed format to the insurance company alongwith the policy documents. The reason for assignment has to be stated. Once the assignment is made, the insurance company sends the policy documents to the assignee.

5) The policy is assigned to the insurance company in case of policy loans and once the loan is repaid, the insurance company re-assigns the policy to the original policy owner.

6) Assignment is applicable on all insurance plans except Pension Plans and Married Women’s Property Act (MWP).