What is nomination and assignment in life insurance ? What is the difference between “nomination and assignment” ? What are different types of assignments?
What is the prime objective of buying a Life Insurance Policy – To provide ‘financial protection to your dependents, Right’. Then, is it not essential for us to understand who gets our Life Insurance claim, if anything happens to us? Here comes the role of nomination and assignment.
Nomination and assignment are the terms which you must be aware of to effectively manage the benefits accruing under your Life Insurance Policy.
Who is a Nominee ?
A nominee is the person designated by the policyholder to receive the proceeds of an insurance policy, upon the death of the insured.
What is Nomination ?
Nomination is a right conferred on the Life Insurance policyholder to appoint a person or persons to receive the policy monies in the event of the policy becoming a claim by death. Any policyholder, who is a major and the life insured under a policy, can make a nomination.
You would definitely want to ensure that your loved ones can access the funds quickly. With a nomination, the policy moneys can be disbursed much faster.
The following details are necessary when filling in the proposal form:
Full Name of the Nominee, Address, Age, and the Relationship between You and the Nominee.
Let us take an example – I am a life assured having a Term Insurance Policy of SA 1 Crore. I have mentioned the name of my wife as a nominee in the policy. Suppose, I die tomorrow in a car accident and I have not assigned the policy to anyone.
Who will get the money?
My wife will get the money without hassles.
What if I have not mentioned the name of the nominee?
Without a nomination, my insurance company is not obligated to release the policy money until my loved ones obtain either of these documents, which may take several years:
– Grant of Probate or
– Letter of Administration or
– Distribution Order
Now what, if I have assigned the policy to anyone?
Let’s first understand, What is Assignment?
Transfer by the holder of a Life Insurance Policy (the assignor) of the benefits or proceeds of the policy to a lender (the assignee), as a collateral for a loan.
In the event of death of the assignor, the assignee is paid first and the balance (if any) is paid to the policy’s beneficiary. Types of insurance policies used for this purpose usually include an Endowment Plan, Money Back Policy or a ULIP. Term Plans cannot be used in case of assigning a policy.
In most instances, the assignment of such rights can only be effected with the written consent of the insurer.
Types of Assignment
There are two kinds of Assignments:
- Conditional Assignment: The interest in the policy automatically reverts to the assignor on the occurrence of the specified condition.
- Absolute Assignment: The assignee becomes the title holder in the policy and can deal with policy in any manner they choose.
Nomination and Assignment – Difference
Nomination and Assignment – Example
In 2001, Mr. Malhotra takes a Life Insurance – Money Back Policy of Rs. 5,00,000 sum assured (s.a.) for a 20-year term with survival benefits payable @ 20% of s.a. at the end of every 4th year and balance payable at the time of maturity (2020) along with bonus and final loyalty addition bonus, if any. Death benefits payable to the nominee or a legal heir full sum assured (Rs. 5,00,000) + bonus without deducting the survival benefits earlier paid.
It is also important to know that the nomination form must be signed by a witness who is 18 years old and above, of sound mental health and who is also not your nominee. Ensure that your insurance company endorses the nomination, on either the policy document or the nomination form. However, be aware that not all nominees will receive the policy moneys beneficially or for their own use.
Now you know the difference between nomination and assignment. Please feel free to comment if you have any doubt about nomination and assignment in life insurance.