ALIFE insurance policy provides financial security to one’s dependents if the breadearner of the family dies during his earning life. It is ideally purchased in the early stage of life and for fairly long duration.
Some conscientious people prefer the policy term to coincide with retirement or the age when he would have finished all his responsibilities towards dependent family members. In such a scenario, it is not unusual to buy more than one life insurance policy during the initial five to 10 years with varying features of life cover and maturity benefits to suit the requirements at different life stages.
Except for term insurance policy where the value of the sum assured remains constant throughout the term, other life insurance policies keep acquiring higher intrinsic value with the passage of time due to reversionary bonus additions every year or due to guaranteed additions at fixed intervals.
Life insurance – a valuable asset
At a given point of time, even the unit-linked insurance policies may be worth much more than the sum assured with growth in NAV. Thus a life insurance policy becomes a valuable asset in the hands of the policyholder. He may use this asset in several ways for fulfilling other financial needs. So, it’s wrong to assume that the money paid for a life insurance policy remains locked till one is old and he is unable to enjoy his savings when he needs it most.
Life insurance policy is a financial asset and can be assigned to an entity or individual for valuable consideration. Section 38 of the Insurance Act, 1938 as amended in 2015 provides for this. An assignment can be absolute or even conditional. In
Section 38 of the Insurance Act, 1938 as amended in 2015 provides for this. An assignment can be absolute or even conditional. In case of assignment, the rights, interest and title of the policyholder or the assignor vests in the assignee.
The assignee in whose favour assignment is executed becomes full owner of the policy even though the original policyholder remains the life assured. In case of maturity or death claim, the assignee will be entitled to receive the claim amount. If a policyholder wants that the proceeds of a policy must go fully to a particular family member, he can assign the policy in his favour to fulfil his wish. It is also important to note that whenever assignment is executed it cancels nomination made under the policy.
Assignment is irreversible
Assignment is irreversible and the policyholder can own it again only through reassignment in his favour by the first assignee. This happens when a policyholder raises loan from any financial institution and assigns the policy as a collateral security. Once the loan and interest are fully repaid, the bank reassigns the policy in favour of the policyholder. In all such cases the policyholder needs to make fresh nomination under the policy. The original nomination does not get automatically restored.
Assignment is executed on the body of the policy bond and is witnessed by at least one person. If executed on separate paper it has to be on valid stamp paper and must be attached to the policy bond with necessary endorsement. For an assignment to be recognised, it has to be brought to the notice of the insurer through a written notice which must be noted and acknowledged by the insurer.
It is generally found that on repayment of personal loan or housing loan the lender just returns the bond to the borrower and overlooks the necessity of executing reassignment. Whenever claim arises under such policies, the policyholder or the claimant has to face hassles to set the record right and receive the benefit. Similarly, not filing fresh nomination causes tremendous hardship to the successors of the deceased policyholder. A well-informed policyholder can make use of assignment in variety of ways.
The writer is former MD & CEO, Star Union Dai-Ichi Life Insurance