Difference between nomination and assignment in life insurance
Table of Contents
Life insurance is one of the most important insurance products that is agreed upon by the insurer and the insured. Under a life insurance policy, the insurer agrees to pay certain benefits to the beneficiaries of the policyholder upon the latter’s death or if they suffer from any kind of terminal illness as well as maturity benefits. Owing to the many benefits that life insurance offers, many people now prefer buying it over other insurance plans. Thus, it is important to understand the different terms associated with life insurance, such as nomination and assignment which are often used interchangeably by many. So, let us understand the difference between nomination and assignment in life insurance.
What is Nomination in Life Insurance?
Nomination in life insurance is a right that is granted to the policyholder under which they can nominate a close relative or dependant to receive the life insurance policy benefits upon their death. The process of nomination is dictated by the Insurance Act of 1938. During this process, the individual who is appointed to receive all the benefits is called the Nominee. The process of Nomination helps in ensuring that the beneficiaries of life insurance get financial assistance even after the death of the policyholder. There are different types of nominees, such as the following:
- Beneficial Nominee: A Beneficial Nominee can be the policyholder’s immediate family members such as a spouse, children, or parent who is entitled to receive monetary benefits.
- Minor Nominee: Minor Nominees include the policyholder’s children who are under the age of 18 years and are nominated by the policyholder to receive policy benefits upon their death. However, as minors are not considered eligible to receive claim benefits, a custodian is appointed for them till they turn 18. Until then, the claim amount is paid out to the custodian of the minor nominee.
- Changing Nominee: Under this policyholders can change their nominee multiple times, however, the current nominee should supersede all the other nominees.
- Non-family member Nominee: Non-family member Nominees are those who are distant relatives or friends of the policyholder and have been nominated to receive the policy benefits.
Thus, the process of nomination is important in granting the beneficiaries of policyholders a legal right to claim policy benefits upon the former’s death. Also, there can be multiple nominees in one policy, however, nominees are not entitled to change to get the policy features changed.
What is Assignment in Life Insurance?
Unlike Nomination, Assignment in Life Insurance refers to the process where there is a transfer of rights, ownership, title, and more from the policyholder to another person or an entity. The process of Assignment in Life Insurance is regulated by Section 38 of the Insurance Act, of 1938. In this process, the individual who is transferring the policy to someone else is called the Assignor, and the person or entity who is assigned the policy is the Assignee. During this process, when the policy is transferred, then the rights of the policyholder get cancelled and the assignee becomes the sole owner of the policy. The two different ways in which Assignments can be carried out are as follows:
- Absolute Assignment: Absolute Assignment refers to the process in which the policy is completely transferred to another entity or individual. There are no terms and conditions involved in the process.
- Conditional Assignment: Conditional Assignment on the other hand refers to the process in which the policy is transferred based on certain terms and conditions. Only if all the terms and conditions are satisfied then will the policy be transferred from Assignor to Assignee.
Please note that during the process of Assignment, only the ownership is transferred and not the risks involved, the life insured remains the same. Also, Assignment is applicable to all policies, except, life insurance plans under the Married Women’s Act and Pension plans.
Difference Between Nomination and Assignment
In the table below, listed are the differences between Nomination and Assignment
|
Point of Difference |
Nomination |
Assignment |
|
Process |
The name of the nominee is mentioned as the primary step |
This is done through Endorsement of the life insurance policy |
|
Witness |
There is no witness required for the Nomination process |
A witness is a must in the Assignment process |
|
Policy Ownership |
Here the ownership does not change and the policyholder still remains the owner |
Here the ownership is transferred to an individual or an entity |
|
Purpose |
To ensure that the nominee receives the claim benefits upon the death of the policyholder |
To ensure that the rights and ownership, everything is transferred to Assignee’s name |
|
Policy Amount |
The nominee will receive the claim amount |
Here the assignee will receive the entire policy money |
|
Sueing rights |
Here the nominee holds no right to sue the policyholder |
The assignee can sue the assignor of the policy in case of any discrepancy |
Take Away
So, now that you know the difference between Nomination and Assignment, it will become easier for you to undergo this process. Both of these processes serve different objectives, and thus should never be used interchangeably. However, if you still have any doubts, then feel free to reach us at InsuranceDekho.
Also Read:
