Assignment vs Nomination in Life Insurance Policy

Difference Between Assignment and Nomination in Life Insurance Policy

As soon as we start having a steady income, we should start investing our money, and it really does not matter whether the scale is large or small. One of the things that is well worth investing your money in, is a life insurance policy. As a matter of fact, life insurance has become a familiar term to almost all the families in urban India. The biggest reason for its widespread popularity is that a life insurance policy comes with a heap of benefits.

And as we talk about life insurance, we must be aware of the two commonly used terms, assignment and nomination. So, let us talk about these two terms here today.

What is an assignment?

Assignment in insurance means transferring the rights, title, and ownership of the policy from a policyholder to another individual or even an entity. The person who is involved in transferring the policy is called an assignor and the person to whom the policy has been transferred is called the assignee. Under section 38 of the Insurance Act, 1938, assignment is regulated.

Types of assignment in insurance policy

An assignment is further divided into two types, such as Absolute Assignment and Conditional Assignment. Let us discuss them a bit here.

• Absolute Assignment: Under Absolute Assignment, the assignor is the one who transfers all rights, titles, and even interests. This is transferred without reversion to the assignor. Under this, the ownership of the policy is shifted to the other parties without the terms and conditions. The assignment is done for raising loans or for affection towards the family members.
• Conditional Assignment: Under Conditional Assignment, rights are transferred from the Assignor to the Assignee, depending on the terms and conditions. The policy is transferred only if the conditions are fulfilled.

Things that you should know about Assignment

• It is only the ownership that is transferred under Assignment and not the risks that are involved with the policy. This means the policyholder is still the insured person.
• Assignment can result in the cancellation of nominations in a life insurance policy. However, this may only happen when it is done in favor of the insurer due to a policy loan.
• The Assignment is not applicable for conditions such as the Married Women’s Property Act (MWP) and Pension Plan.

What is Nomination?

Nomination in insurance is a right that the policyholder gets that gives the authority to him or her to appoint an individual to receive benefits in case the life assured passes away. The person who the policyholder appoints to get death benefits is a nominee. A nominee is usually a family member. Nomination runs under Section 39 of the Insurance Act, 1938.

Types of nominees in insurance policy

Here are some of the types of nominees mentioned below:

• Minor nominees: Many policyholders prefer appointing their children as the beneficiaries of their policies. However, if the nominees are minor, and have not turned 18 years old yet, they do not meet the eligibility criteria for handling the claim amounts.
• Beneficial nominees: Going by the law, if a policyholder nominated an immediate family member like a spouse, dependent children, or parents, they will be able to receive financial benefits and will also become the beneficial owner of the claim benefits. We must be aware of the fact that only immediate family members can become beneficial nominees.
• Non-family nominees: In this type of nominee, even a friend or a distant relative can be appointed as a nominee.

Changing nominees

Under this type, policyholders are allowed to change their preference of nominees several times. However, the current nominee must supersede all the other nominees.

Things that you should know about Nomination

• The nomination will be allowed only if the policyholder and the life assured are the same individuals. In case, they are not the same person, only the policyholder will be able to avail of the claim benefits.
• The nominee will not be able to request any kind of modification in the policy.
• The number of nominees in a policy can be more than one.
• In the successive nomination, there are two nominees. If nominee A is appointed as the first person who can receive the claim benefits in the event of death of the life assured. However, if nominee A is no more, the claim benefits will automatically pass to nominee B. In case, both these nominees are not around anymore, nominee C can be appointed for availing of the benefits.

The basic difference between nomination and assignment is the purpose. The nomination helps in protecting the interest of the policyholder as well as the insurance provider in providing the claim benefits under a life insurance plan. While an assignment helps in protecting the interest of an assignee for availing of the financial benefits under a life insurance policy. As a policyholder, you must be aware of both concepts to choose the best option that suits your needs. This can help you in making the most of your insurance policy and care for your loved ones even when you are not there.

Also Read: Grace Period in Term Insurance Policy