Life insurance is a type of insurance that pays money when the insured person dies or the period of insurance expires. It is a long term contract. Assignment and nomination are the two important features of life insurance. It helps the policyholder to manage their policies effectively. In this article, we are going to discuss the role of assignment and nomination in life insurance.
Life Insurance Nomination
It is a process that decides the appointment of a person who will receive the policy benefits after the insured dies. The process of nomination helps the insurance company to smoothly transfer money to the beneficiary.
Some Important points to understand:
#1. When do you need a nominee:
You can do the nomination process only if the policyholder and the life insured are the same people. If they are different person then the policyholder is there to receive the money of the life insured. For example:
If Mr. A is the policyholder and the life insured then the policy benefits will go to his wife if Mr. A dies before the completion of the tenure.
On the other hand, Mr. A is the policyholder and he is doing the policy for his son Mr. B. if Mr. B dies then Mr. A will receive the policy benefits. There is no need for a nominee in this case.
#2. The role of an appointee:
If the life insured passes away and the nominee is still a minor then there is a need of appointee. He will receive the money on behalf of the nominee.
#3. Can I change the nominee?
Yes, you can change the nominee any time you want. The last nomination is the final. He will receive the money after your death.
#4. Can there be more than one nominee?
Yes, you can do multiple nominations. That means you can have more than one nominee for a policy.
#5. What is a successive nomination?
There is also a clause for successive nomination. For example, you have selected A and B as the successive nominee. After your death A will receive the policy amount. But in case A is dead he is not there to receive the money. Then B will be eligible to get the money.
#6. When can I add my nominee?
You can add nominee when you are purchasing the policy. You have to submit the details of the nominee. The details are the age of the nominee, nominee’s relation with the insured person, address, etc. You can also add the name of the nominee after the purchase of the policy. You have to submit a nomination form to the insurance company.
#7. When will the nominee receive money?
The Nominee can get the money only when the policyholder dies during the policy tenure. If the tenure completes and the policyholder is still alive then the policyholder will receive the money.
#8. Can the nominee change the policy?
No, The nominee cannot make changes in the policy.
Life Insurance Assignment
It is a process where there is a transfer of policy ownership. In assignment the policy ownership changes from the policyholder to another person. We call the policyholder assignor and the other person assignee. There are two types of assignments. They are absolute assignment and conditional assignment.
In an absolute assignment, the assignor loses his rights over the policy. He cannot revoke it after the transfer of the policy. After the transfer of the policy, the benefits are payable to the assignee or his legal heir. Usually, people do this because of love for a family member, to raise a loan.
If it is to raise a loan then the insurance company will send renewal intimation notice to the assignor and the assignee. The assignee is responsible to pay the premium if he is taking a loan.
The assignee can re-assign the policy to the assignor if he wishes to do so.
This type of assignment comes with terms and conditions. Suppose Mr. A is assigning the policy to Mr. B. the condition is that if Mr. A outlives the tenure then he will get the maturity. But if he doesn’t then Mr. B will get it.
Some Important points to understand:
#1. In assignment the ownership of the policy changes. The insured remains the same.
#2. The assignment cancels the nomination.
#3. The assignor has to submit an assignment request to the insurance stating the cause of it. When the procedure is complete the insurance company sends the policy document to the assignee.
#4. The assignment is for loan purposes then the insurance company re-assigns the policy to the assignor after the repayment of the loan.
#5. You can apply assignments in all types of insurance policies. The exceptions are Pension plans and married Women’s Property Act.
Difference between Assignment and nomination
Here are the differences between the assignment and the nomination are:
|Ownership||There is no change in ownership||There is a change in ownership|
|Consideration||None||Collateral security, Valuable consideration is present|
|Rights||The Nominee has no right if the policyholder outlives the tenure||The assignee has the right to change the policy|
|Revoke||You can change the nominee whenever you want||Once the assignment is complete you cannot revoke it|
|Who can you choose||Usually a close relative||It can be outside party other than relative|
|Why we do it||For smooth transfer of policy benefits||To transfer the rights|
The assignment and the nomination can look similar from the surface but they are different from each other. From the above discussion, we can understand the basic difference between Assignment and nomination in Life Insurance. It is always a wise decision to take advice from your agent and insurance advisor before opting for nomination or assignment. Thoroughly understand the procedure before choosing anything. If you like this article please share it with your friends and family. If you want to know more please comment in our comment box below. We will answer your query ASAP.