Nomination and assignment in Life Insurance Policy

Nomination and assignment

Nomination

Nomination is where the life insured proposes the name of the person(s) to which the sum insured should be paid by the insurance company after their death. The life insured can nominate one or more than one person as nominees. Nominees are entitled for valid discharge and have to hold the money as a trustee on behalf of those entitled to it. Nomination can be done either at the time the policy is bought or later. A person having a policy on the life of another cannot make a nomination. Under section 39 of the Insurance Act 1938, the holder of a policy on their own life may nominate the person or persons to whom the money secured by the policy shall be paid in the event of their death.

Important features of nomination:

Nomination can be changed by making another endorsement in the policy. If there is insufficient space, the nomination can be done on a plain piece of paper and attached to the policy document with the signature of the life insured at the edges, where the paper is attached to the policy. Any changes to or cancellation of the nomination can be done by the life insured during the term of the policy.

With a joint life policy, nomination may not be required, as on the death of one of the lives insured the policy monies are payable to the surviving life insured. However, nomination can be made jointly by both the lives insured nominating a person to receive the sum insured, in case both the lives insured die simultaneously.

Nomination only gives the nominee the right to receive the policy monies in the event of the death of the life insured. A nominee does not have any right to the whole (or part) of the claim.

In cases where the nominee is a minor, the policyholder needs to appoint an appointee. The appointee needs to sign the policy document to show their consent to acting as an appointee. The appointee loses their status when the nominee reaches their majority. The life insured can change the appointee at any time. If no appointee is given and the nominee is a minor, then on the death of the life insured, the death claim is paid to the legal heirs of the policyholder.

Where more than one nominee is appointed the death claim will be payable to them jointly, or to the survivor or survivors. No specific share for each nominee can be made. The nomination can also be done in favour of successive nominees such as: ‘Payable to Rashmi Gupta, failing him to Pallav Gupta, failing him Madhav Gupta’.

Nominations made after the commencement of the policy have to be intimated to the insurers to be effective.

Should the nominee die after the death of the life insured, but before the payment of the death claim, then the sum insured would form a part of the estate of the life insured and would be paid to their legal heirs.

Assignment

Assignment refers to the transfer of title, rights and interest in an insurance policy to another.

Once the policy has been assigned, the assignee has ownership of the policy and does not need the consent of the assignor in matters relating to the policy. An assignment once made cannot be cancelled or altered in any form by the assignor. However, the policy can be ‘reassigned’ by the assignee in favour of the assignor.

Section 38 of the Insurance Act specifies the legal provisions relating to the assignment of insurance policies. It states that:

• the assignment can be done by an endorsement on the policy or by a separate deed. When assignment is made by an endorsement on the policy itself, no stamp duty is necessary. Separate deeds have to be stamped;
• it must be signed by the assignor or their duly authorized agent;
• the signature must be attested by a witness;
• the assignment becomes effective on execution;
• the insurance company needs to be informed about the assignment along with a notice;
• the insurance company considers the assignment to be effective only when it receives the notice regarding the assignment; and
• when there is more than one instrument of assignment, the priority of the claims shall be determined by the order in which the notices are delivered to the insurer.

Anand Khemka
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