Difference between nomination and assignment in life insurance
To provide the financial safety net your family deserves from different life risks, especially in your absence, you need to invest in a good insurance plan. Life insurance plans are the ones that give financial assistance in the event of an unfortunate circumstance wherein your family have to cope with its economic cost.
In life insurance, among the various aspects that you need to understand when purchasing it is that of a nominee and assignment. What is their relevance in terms of life insurance? What is the difference between them? Read more to find out.
Understanding life insurance
What is life insurance? It is a type of policy wherein the insurer agrees to provide financial assistance to your family. If you were to pass away during the policy term, your family would receive a death benefit from the insurer. The amount would be based on the type of policy you purchased. This amount will help in ensuring your family’s secure future.
What is assignment?
When you purchase life insurance and transfer its rights to another person, it is known as an assignment. An assignor, i.e., the policyholder, is the person who assigns the insurance policy. An assignee is the person to whom the policy rights have been transferred, i.e., the person to whom the policy has been assigned. When the rights of policy are transferred, the rights of the policyholder cease to exist. People often assign their life insurance policies to banks. A bank becomes the policy owner in this case, while the original policyholder continues to be the life assured whose death may be claimed by either the bank or the policy owner.
What are the types of assignment?
There are two ways to assign an insurance policy. They are as follows:
- Absolute Assignment
When you completely transfer the policy rights to another person, i.e., from assignor to assignee, it is known as an absolute assignment. It is not subject to any conditions.
- Conditional Assignment
In conditional assignment, certain conditions must be met before the transfer of rights occurs from the Assignor to the Assignee. The Policy will only be transferred to the Assignee if all conditions are met.
What is nomination?
The person who will receive the benefits from the policy upon your sudden demise during the policy term is known as a nominee. Policyholders appoint nominees to receive benefits. Under the Insurance Act, 1938, Section 39 governs the nomination process.
What are the types of nominees?
Here are a few types of nominees:
- Beneficial Nominees
Immediate family members such as parents, partner or children are known as beneficial nominees. Beneficiary nominees are limited to immediate family members of the beneficiary.
- Minor Nominees
It is common for individuals to name their children as beneficiaries of their life insurance policies. Minor nominees who are under 18 are not allowed to handle claim amounts. Hence, the policyholder needs to designate a custodian or appointee. Payments are made to the appointee until the minor reaches the age of 18.
- Non-family Nominees
Nominees can include distant relatives or even friends as beneficiaries of a life insurance policy.
- Changing Nominees
It is okay for policyholders to change their nominees as often as they wish, but the latest nominee should take priority over all previous ones.
Key differences between them
- Assignment involves transferring the ownership rights, whereas, in nomination, the ownership rights stay with the policyholder.
- A witness is necessary when it comes to the validity of the assignment, whereas a witness is not necessary for nomination.
- The assignee can legally pursue the assignor; however, a nominee cannot legally pursue the policyholder.
- The assignee will receive the money from the policy, whereas the nominee gets to claim the benefits from the policy.
These are the differences between assignment and nomination in a life insurance. You can get more information about this from your insurer’s website, where you can also use the life insurance premium calculator to get an idea about the cost of your policy.s