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What is Absolute vs Collateral Assignment of Life Insurance?

by Life Credit Company | Mar 15, 2018 | Understanding Your Life Insurance Policy | 2 comments

When you purchase life insurance, you typically do so to prepare for after your death. However, an insurance policy is an owned entity and, as such, can be sold or used as collateral for a loan in order to provide cash value to someone in need.

Just as there are many questions when considering whether to get  term insurance or whole life insurance , there are also a lot of factors to consider if you choose to use your policy to access the cash you’ve invested in it. It’s important to understand terms like absolute assignment and collateral assignment, as well as weigh the differences, in order to satisfy your particular financial needs.

What is absolute assignment of life insurance?

Absolute assignment in insurance involves signing over your entire policy to another person or entity. The person who is selling or gifting the policy is known as the assignor, and the individual or individuals who receive it are the assignee. The assignee takes full ownership of the policy, being held liable for any premiums and also having the authority to change or designate new beneficiaries.

What is a collateral assignment of life insurance?

Collateral assignment of life insurance essentially works like a standard loan. The insurance policy is “collateral” for a loan, and the person or organization that pays out that loan is the temporary beneficiary of the policy’s death benefit until the loan is repaid. The entity taking over the policy does so on a conditional basis and, therefore, doesn’t have the authority to make changes to it, re-sell it or take any of its cash value. Instead, the assignee can only draw on the death benefit if the policyholder defaults.

This type of approach is used by Life Credit, through the Living Benefit Loan program, which provides up to half of the value of a death benefit for a policy worth at least $75,000. This loan enables cancer patients and seniors to access immediate and unrestricted assistance to help reduce financial burden.

Compare Life Insurance Policy Assignments

If you’re facing a financial challenge and asking yourself, “ Can my life insurance policy’s cash value help me? ” then one of the most important things you can do is look at the big picture.  An absolute assignment type of approach may allow you to generate a lot of quick cash, however, down the line, you or your family will not have any protection and cushion from a life insurance policy. This may be a policy that you have paid into for decades, so losing that value is a significant consideration.

Collateral assignment, on the other hand, enables policy holders to regain control of their own policy once a medical or other crisis has resolved. It is one of the  3 common ways to borrow from your life insurance policy  and access the cash value. With a collateral assignment you are able to eventually benefit again from the long-term advantages of a life insurance policy. Most people are used to paying car loans, student loans and mortgages, so treating this agreement similarly and making the requisite payments can help people to not only address their immediate financial concerns but also ensure long-term success.

Contact a Life Credit representative to  find out if you qualify for a life insurance loan .

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We are a licensed consumer lender that is dedicated to providing financial assistance for patients who are facing serious illness. With a Living Benefit Loan, from Life Credit Company, you can receive up to 50% of your life insurance policy’s death benefit today. Whether you need to catch up on medical bills, consolidate debt or take your family on a dream vacation, this is your money to spend without restrictions. If you have at least $75,000 of life insurance and have been diagnosed with cancer or other serious medical condition, you may qualify for a loan. Contact us today to speak with a professional counselor who is standing by to assist you.

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Home » Articles Library » 2 Ways to Transfer Ownership of a Life Insurance Policy

2 Ways to Transfer Ownership of a Life Insurance Policy

Things to Know about Borrowing Against Your Life Insurance Policy

As property, policyowners can transfer their life insurance contracts to other persons or entities. A policyowner can transfer either all or only some of the “bundle of rights” that comprises a life insurance policy to almost any person or entity.

The two basic ways of making a lifetime transfer of a policy are: (1) the absolute assignment; and (2) the collateral assignment. An absolute assignment, as its name implies, transfers all the policyowner’s rights irrevocably. A collateral assignment, again as its name implies, assigns so much of the death benefit as necessary for as long as necessary to secure a lender’s rights. But no more of the proceeds will go to the lender than the amount of debt owed.

Requirements

The assignment does not have to be of any particular form (absent specific provisions in state law or the contract to the contrary). Because life insurance is treated as personal property, policyowner may transfer ownership rights, not only by many different types of documents, but also by many different actions. For example, if a person sells a business and the business owns a life insurance policy, the sale of all the assets of the business carries with it the personal property the business owned – including the life insurance.

Likewise, a property settlement in connection with a divorce may have the effect of transferring the ownership of life insurance on the life of one or the other (or both) spouse(s) even though no one ever uses the word “assignment” with regard to these transfers. But this type of transfer (where a clause in the divorce decree disposes of life insurance) is both very dangerous and very awkward. If a policyowner names his new spouse as beneficiary of the insurance proceeds and the insurer has no notice or knowledge of the divorce decree’s change, both spouses are likely to claim the proceeds. Furthermore, if the decree requires the policyowner spouse to maintain the policy for the benefit of his or her ex-spouse, the policyowner cannot obtain a policy loan-even to keep the policy in force through a premium loan.

Before either the absolute or collateral type of assignment or any other instance of a policy ownership transfer is valid, the policyowner must notify the insurer (and, where required by the terms of the contract, the insurer must consent to the assignment). Once notified in writing at the insurer’s home office, the insurer must honor the policyowner’s transfer—unless the terms of the contract itself forbid assignments. So if the insurer then disregards (by intention or neglect) the assignee’s rights and makes payment to someone else, the courts may force the insurer to make a second payment to the assignee. If the policyowner gives no notice to the insurer, it will be protected in a transaction initiated by a former owner. For instance, if the former owner applies for a policy loan and he has not given the insurer proper notice that he had assigned the policy, the insurer is protected in making that loan.

The insurer does not, however, have to verify the bona fides of the transaction between the policyowner and the transferee nor the validity of the transaction. In other words, the insurer is not accountable for the mental or legal capacity of the policyowner to make the assignment (unless it had knowledge that the policyowner was not legally competent to make it or there were irregularities in the assignment form).

Absolute Assignments

Policyowners use an absolute assignment in life insurance planning when the policyowner wants to sell or give away all of his or her rights under the contract. The goal might be to obtain valuable consideration, to save estate taxes, avoid creditors, or purely for love and affection and to assure the transferee of financial security. There are many common examples of sales and gifts: 

  • A client might sell a policy on his life to his business.
  • A business might sell a policy on an employee’s life to the employee or to the employee’s spouse or child or trust (or to a pension plan).
  • A shareholder might sell a policy on his life to a new business associate.
  • A client might give a policy on her life to her spouse.
  • A client might give a policy on his life to his children or to a family trust.

Tax Implications

Both sales and gift transactions have important and sometimes unexpectedly expensive tax implications. Planners should thoroughly research before allowing any sale of a life insurance policy. Also, understand what should be considered before allowing a client to make a gift of a policy. A valid gift requires that the donor have contractual capacity and intent to make a voluntary gratuitous transfer and the gift must be delivered to and accepted by the donee (assignee).

Nontax Implications

Planners must be aware of the nontax implications of an absolute assignment in order to avoid them and/or alert the client to their potential effect. Some of these are: 

Although an absolute assignment itself may not per se change the interest of a revocable beneficiary, as a practical matter the new owner can immediately change the beneficiary and often makes that change almost simultaneously with the assignment. Some absolute assignment forms state that the new owner is automatically the primary policy beneficiary until the new owner makes a change to the beneficiary designation.

If the policyowner made an irrevocable beneficiary designation before making an absolute assignment of the policy, in most states the assignment will not defeat that designation (without the written consent of the beneficiary) and the transferee should be apprised of this fact.

Absolute assignments may put the policy and its proceeds beyond the claims of the  policyowner’s creditors, but planners should inform policyowner that—like diamonds—an absolute assignment is forever. There is a loss of both control and flexibility from the transferor’s viewpoint.

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What Is a Collateral Assignment of Life Insurance?

absolute assignment of a life insurance policy

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

absolute assignment of a life insurance policy

A collateral assignment of life insurance is a conditional assignment appointing a lender as an assignee of a policy. Essentially, the lender has a claim to some or all of the death benefit until the loan is repaid. The death benefit is used as collateral for a loan.

The advantage to using a collateral assignee over naming the lender as a beneficiary is that you can specify that the lender is only entitled to a certain amount, namely the amount of the outstanding loan. That would allow your beneficiaries still be entitled to any remaining death benefit.

Lenders commonly require that life insurance serve as collateral for a business loan to guarantee repayment if the borrower dies or defaults. They may even require you to get a life insurance policy to be approved for a business loan.

Key Takeaways

  • The borrower of a business loan using life insurance as collateral must be the policy owner, who may or may not be the insured.
  • The collateral assignment helps you avoid naming a lender as a beneficiary.
  • The collateral assignment may be against all or part of the policy's value.
  • If any amount of the death benefit remains after the lender is paid, it is distributed to beneficiaries.
  • Once the loan is fully repaid, the life insurance policy is no longer used as collateral.

How a Collateral Assignment of Life Insurance Works

Collateral assignments make sure the lender gets paid only what they are due. The borrower must be the owner of the policy, but they do not have to be the insured person. And the policy must remain current for the life of the loan, with the policy owner continuing to pay all premiums . You can use either term or whole life insurance policy as collateral, but the death benefit must meet the lender's terms.

A permanent life insurance policy with a cash value allows the lender access to the cash value to use as loan payment if the borrower defaults. Many lenders don't accept term life insurance policies as collateral because they do not accumulate cash value.

Alternately, the policy owner's access to the cash value is restricted to protect the collateral. If the loan is repaid before the borrower's death, the assignment is removed, and the lender is no longer the beneficiary of the death benefit.

Insurance companies must be notified of the collateral assignment of a policy. However, other than their obligation to meet the terms of the contract, they are not involved in the agreement.

Example of Collateral Assignment of Life Insurance

For example, say you have a business plan for a floral shop and need a $50,000 loan to get started. When you apply for the loan, the bank says you must have collateral in the form of a life insurance policy to back it up. You have a whole life insurance policy with a cash value of $65,000 and a death benefit of $300,000, which the bank accepts as collateral.

So, you then designate the bank as the policy's assignee until you repay the $50,000 loan. That way, the bank can ensure it will be repaid the funds it lent you, even if you died. In this case, because the cash value and death benefit is more than what you owe the lender, your beneficiaries would still inherit money.

Alternatives to Collateral Assignment of Life Insurance

Using a collateral assignment to secure a business loan can help you access the funds you need to start or grow your business. However, you would be at risk of losing your life insurance policy if you defaulted on the loan, meaning your beneficiaries may not receive the money you'd planned for them to inherit.

Consult with a financial advisor to discuss whether a collateral assignment or one of these alternatives may be most appropriate for your financial situation.

Life insurance loan (policy loan) : If you already have a life insurance policy with a cash value, you can likely borrow against it. Policy loans are not taxed and have less stringent requirements such as no credit or income checks. However, this option would not work if you do not already have a permanent life insurance policy because the cash value component takes time to build.

Surrendering your policy : You can also surrender your policy to access any cash value you've built up. However, your beneficiaries would no longer receive a death benefit.

Other loan types : Finally, you can apply for other loans, such as a personal loan, that do not require life insurance as collateral. You could use loans that rely on other types of collateral, such as a home equity loan that uses your home equity.

What Are the Benefits of Collateral Assignment of Life Insurance?

A collateral assignment of a life insurance policy may be required if you need a business loan. Lenders typically require life insurance as collateral for business loans because they guarantee repayment if the borrower dies. A policy with cash value can guarantee repayment if the borrower defaults.

What Kind of Life Insurance Can Be Used for Collateral?

You can typically use any type of life insurance policy as collateral for a business loan, depending on the lender's requirements. A permanent life insurance policy with a cash value allows the lender a source of funds to use if the borrower defaults. Some lenders may not accept term life insurance policies, which have no cash value. The lender will typically require the death benefit be a certain amount, depending on your loan size.

Is Collateral Assignment of Life Insurance Irrevocable?

A collateral assignment of life insurance is irrevocable. So, the policyholder may not use the cash value of a life insurance policy dedicated toward collateral for a loan until that loan has been repaid.

What is the Difference Between an Assignment and a Collateral Assignment?

With an absolute assignment , the entire ownership of the policy would be transferred to the assignee, or the lender. Then, the lender would be entitled to the full death benefit. With a collateral assignment, the lender is only entitled to the balance of the outstanding loan.

The Bottom Line

If you are applying for life insurance to secure your own business loan, remember you do not need to make the lender the beneficiary. Instead you can use a collateral assignment. Consult a financial advisor or insurance broker who can walk you through the process and explain its pros and cons as they apply to your situation.

Progressive. " Collateral Assignment of Life Insurance ."

Fidelity Life. " What Is a Collateral Assignment of a Life Insurance Policy? "

Kansas Legislative Research Department. " Collateral Assignment of Life Insurance Proceeds ."

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WHAT IS ABSOLUTE ASSIGNMENT?

Absolute Assignment is a legal instrument that allows the owner of a life insurance policy or other valuable assets to transfer all rights and ownership of the asset to a designated assignee. This transfer of ownership is comprehensive and unrestricted, giving the assignee complete control and authority over the asset. Unlike conditional assignment, which may have specific conditions attached, absolute assignment represents an unqualified transfer of ownership..

Absolute assignment can be used not only in the context of life insurance but also for transferring ownership of other valuable assets such as real estate and securities. It involves a meticulous adherence to legal requirements and procedural details to ensure the validity and legality of the ownership transfer. Seeking guidance from legal and financial experts is essential to ensure a smooth and legally sound execution of the absolute assignment process..

When considering selling a life insurance policy, individuals have the option to engage in a life settlement, wherein the policy is sold to institutional buyers in the secondary market. This process involves applying to various licensed buyers who compete to offer the highest bid for the policy. An experienced life settlement broker can facilitate this auction-style bid process, ensuring that policy owners receive the best possible offer for their policies..

Welcome Funds is a nationally licensed life settlement broker that specializes in representing policy owners in the secondary market for life insurance. They engage in an auction bidding process to secure the highest offer from institutional buyers, providing professional representation and expert counsel throughout the sale of the life insurance policy..

To explore the eligibility of a life insurance policy for a potential life settlement, individuals can embark on a cost-free and commitment-free journey by engaging in a Life Settlement Qualification Process. This process includes a complimentary Personal Consultation & Appraisal, during which confidentiality is safeguarded. Interested individuals can complete a Quick Life Settlement Qualifier online or call a toll-free number to connect with a dedicated Client Care Advocate..

Overall, the combination of absolute assignment and the life settlement process provides individuals with a means to transfer ownership of valuable assets and explore options for selling their life insurance policies in a competitive market..

Complete our quick Life Settlement Qualifier or call us toll-free at 877.227.4484 to speak with a Client Care Advocate.

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When a professional advisor identifies a life insurance policy that a client no longer needs or wishes to maintain, he should ask, as standard protocol, whether that policy may have value in the secondary market. If so, the client may be able to sell the policy in a life settlement transaction, enabling him to receive a higher cash payout than he otherwise would obtain by lapsing or surrendering the policy back to the insurance company.

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Professional advisors with clients who no longer need or wish to maintain a life insurance policy have options when exploring the secondary market.  Many advisors prudently rely on a licensed life settlement broker to assist them in the sale of the policy and with all aspects of the transaction.  However, there is still a large number of professionals persuaded to work directly with only one buyer, called a life settlement provider.

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What Is a Life Insurance Assignment?

More articles.

  •   1. What Is the Collateral Assignment of a Life Insurance Policy?
  •   2. What Is the Assignment of Insurance Benefits?
  •   3. Absolute Assignment of Life Insurance Policies

Although the basic element of a life insurance policy is financial security protection in the event of a premature death, the variety of products available in the marketplace provides you with many financial planning options. A life insurance assignment is a document that allows you to transfer the ownership rights of your policy to a third party, transferring to that third party all rights of ownership under your policy, including the rights to make decisions regarding coverage, beneficiary and investment options. The two kinds of life insurance assignments are conditional and absolute.

Conditional Assignment

With a conditional assignment, although you transfer your life insurance policy’s ownership rights to another party, the assignment stipulates that if a certain specified event occurs, the assignment can be suspended or revoked in whole or in part. The event in question cannot be something that you can cause to happen. If you assigned your life insurance policy to a business partner, for example, with the explicit agreement that on the death of that business partner the assignment is revoked, that assignment is deemed conditional.

Absolute Assignment

When you make an absolute assignment, the rights, title and interest in the life insurance policy pass on to another party without the possibility of reversal. The assignment provides security to the assignee in that you can no longer make decisions regarding the policy that would jeopardize it, such as taking out a policy loan or withdrawing cash values.

Secured Loan

If you own a business, and you wish to take out a loan for your business, the lender may require you to purchase life insurance on your own life as security for the loan. Initially you make the request for the insurance. Once the policy is approved and issued, you make an assignment to the bank. The bank now controls the decisions and can make changes to the policy, including naming itself as beneficiary.

Collateral Loan

If you own a life insurance policy with cash values, you might wish to access those cash values to increase your income flow. Withdrawals from life insurance policy cash values can result in taxes due and might reduce your death benefit. An alternative is to assign the life insurance policy to a lender in exchange for a line of credit or regular loan payments. These loans are generally not taxable, and you can typically borrow up to a stated maximum percentage of the cash value. Since the policy is assigned to the bank, your failure to pay the premiums on the policy will cause the bank to call the loan, cancel the insurance policy and use the cash values as payment of the loan. If you maintain the policy in force until your death, the bank is generally the beneficiary of the tax-free policy proceeds up to and including the outstanding amount of the loan, with any remaining policy proceeds paid tax free to your named beneficiary.

  • AXA Life: Know Your Insurance

Philippe Lanctot started writing for business trade publications in 1990. He has contributed copy for the "Canadian Insurance Journal" and has been the co-author of text for life insurance company marketing guides. He holds a Bachelor of Science in mathematics from the University of Montreal with a minor in English.

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What Is 'Absolute Assignment'

A n absolute assignment is a legal term that describes the transfer of ownership of a life insurance policy from one party to another. In this process, the original policyholder or owner gives up all rights and control over the policy to a third party, typically in exchange for something of value, such as money or a loan.

When a policyholder assigns their life insurance policy, they are essentially transferring ownership of the policy to someone else, who then becomes the new owner of the policy. The new owner of the policy assumes all the rights and responsibilities of ownership, such as paying premiums, maintaining the policy, and receiving the death benefit if the insured person passes away.

The process of absolute assignment requires the original policyholder to sign an absolute assignment form, a legal document that transfers ownership of the policy to the new owner. This document must be signed by both the policyholder and the new owner and submitted to the insurance company for processing.

The absolute assignment of a life insurance policy is often used as collateral for a loan or a way to secure a debt. For example, a person may assign their life insurance policy to a bank or lender as collateral for a loan. If the borrower cannot repay the loan, the bank or lender can collect the death benefit from the policy to cover the outstanding debt.

In addition, absolute assignment is sometimes used in divorce settlements, where one spouse assigns their life insurance policy to the other as part of the property settlement agreement. This ensures that the other spouse receives the death benefit if the insured person dies.

It is important to note that once an absolute assignment has been made, the original policyholder has no control or rights over the policy. They cannot make changes to the policy, such as increasing or decreasing the coverage amount or changing the beneficiary. These rights now belong to the new owner of the policy.

In summary, an absolute assignment is a legal process of transferring ownership of a life insurance policy from one party to another. It requires the original policyholder to sign a legal document that transfers ownership to the new owner, who assumes all the rights and responsibilities of ownership. Absolute assignment is often used as collateral for loans or as part of a divorce settlement agreement. Once an absolute assignment is made, the original policyholder has no control or rights over the policy.

 What Is 'Absolute Assignment'

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Life Insurance Assignments – What They Are and Why You Need Them

Everything You Need to Know about Absolute vs. Collateral Assignments

Table of Contents

Collateral assignment, how is a collateral assignment used, how to complete a collateral assignment, releasing a collateral assignment, death and collateral assignments, collateral assignments for the uninsurable, absolute assignment, final words.

What is a collateral assignment?

A collateral assignment of life insurance gives lenders the right to collect your policy’s death benefit up to the amount of the outstanding loan balance.

A typical scenario involves taking out a business loan .

The lender may require a life insurance policy as collateral.

The type of life insurance policy used, whether a term, whole life, or universal life doesn’t matter.

The insurance policy will pay off the balance if you die while the loan is outstanding.

Life insurance for SBA loans is required when you borrow from the SBA.

The collateral assignment applies to the entire policy, including any life insurance rider benefits that may be part of the policy.

The process is similar whether you are adding the assignment to an existing policy or are buying new coverage.

There are two parties to a collateral assignment.

  • Assignor – Is the owner of the life insurance policy
  • Assignee – Is the lender

Life insurance companies have standardized forms used for this purpose.

  • The owner completes the form and sends it to the lender for review and signature.
  • Once complete, you will send the form to the insurance company.
  • The insurance company records the assignment and sends a confirmation to the owner and lender that the assignment is complete.

This may all seem confusing if you haven’t used an assignment before, but the reality is that most life insurers make it pretty easy to complete.

When you pay off your lender, you have the right to have the collateral assignment removed.

The life insurance companies have collateral release forms as well.

  • The owner completes the form and sends it to the lender.
  • The lender signs off on the release.
  • Once complete, the insurance company records the release and sends the discharge letter to all parties.

Once complete, you should re-check with the home office to ensure that your policy released the assignment.

Your agent can help with this.

How do collateral assignments work when you die?

Check out this example:

  • Policy Face Amount = $1,000,000
  • Beneficiary = Your Spouse
  • Original Bank Loan = $200,000
  • Outstanding Loan Balance at Death = $100,000

What happens next?

  • Your beneficiary will file the death claim with the life insurance company.
  • The life insurance company will review the claim and see a collateral assignment attached to your policy.
  • The insurer contacts the lender for an updated payoff figure.
  • Payoff amounts are sent directly to the lender.
  • Your beneficiary receives the balance of the policy death benefit .

For the above example, your lender would receive $100,000, and your beneficiary would receive the remaining $900,000 as intended.

I would like to remind you that you NEVER want to name your lender as the beneficiary, as they would receive the entire proceeds rather than just what was owed.

While lenders may want a life insurance policy as collateral, sometimes it’s difficult to obtain if the insured has substantial health issues .

If you have an existing life insurance policy in effect, it’s possible to use that for the assignment.

Another option that exists in some states is contingent coverage.

Contingent coverage is a one-year policy that you can renew.

The policy will exclude death from the known health issue but provide coverage for new health issues that develop or from accidental deaths .

Many lenders accept this coverage when it’s the only option available.

What is an absolute assignment?

You use absolute assignments when you permanently relinquish all ownership rights to your life insurance policy.

Some examples:

Life Insurance Settlements

With this transaction, you are selling your life insurance policy to a third party.

You may convert a term policy to permanent insurance before it is sold.

Another example may involve admitting seniors to a nursing home.

The nursing home may take over the policy you have.

1035 Exchange

A 1035 exchange is a tax-free transfer of cash value from universal life or whole life policy to another similar policy.

Gifting Life Insurance to Charities

You can use absolute assignments to permanently transfer your policy to your favorite charity.

Irrevocable Life Insurance Trusts (ILIT)

You use absolute assignments to permanently transfer your policy to an ILIT.

An example would be a survivorship policy you and your spouse own that you are transferring to the trust.

Many other potential issues may arise with transfers to an ILIT that are beyond the scope of this article.

Business Cases

If you purchased key person life insurance on an employee, absolute assignments are used to transfer ownership to the employee.

You may have questions about your life insurance assignment and how it works.

The following are general guidelines, as each situation is uniquely different.

Can the collateral assignment change the beneficiary?

No, the collateral assignment does not change the beneficiary.

The life insurance assignment gives the lender the right to receive proceeds equal to their outstanding loan balance.

Can a business be a beneficiary in a collateral assignment of life insurance?

A business can be the beneficiary of a life insurance policy that is collaterally assigned.

Life insurance assignments are common for absolute and collateral assignments.

What is most important is that we understand what is involved with this process.

That’s where we’ll help you make the best decision for your life insurance.

There is never any pressure or obligation with our life insurance service.

Please take a few minutes to submit your quote request today. Thank you.

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Absolute Assignment

What does absolute assignment mean.

Absolute assignment refers to a policyholder transferring his or her ownership of a policy to another party. That transfer means that all of the coverage within that policy will now go to the newly named party. The original owner of the policy does not have to state his or her reasons for doing so nor does he or she need to stipulate any conditions for the transfer.

Insuranceopedia Explains Absolute Assignment

There are a number of reasons why a policyholder transfers all of their rights to a policy to another person or entity. They might think of it as a gift to someone else. It could be the sole means of paying off a loan. Even if the insured has now given up their rights to all of the claims and privileges, they are still responsible for payments for the policy. The new owner might have been asked by the original owner to pay the insurer after the transfer is completed, but if the newly named party fails to do so, the negligence will not be blamed on that person but on the original policyholder.

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  • Life Insurance
  • Assignment Vs Nomination In Life Insurance Know The Difference
  • Understanding Nomination and its Types
  • Understanding Assignment and its Types
  • Key Differences Between Nomination and Assignment

Assignment vs Nomination in Life Insurance

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Assignment vs Nomination in Life Insurance

In life insurance plans, Nomination and Assignment are the two important terms that are frequently used. Acknowledging these terms helps the policyholder to extract the benefits available under the life insurance policy without making a hole in his/her pocket.

Policyholders should know the exact difference between the two before making any decision to purchase the policy. It is required that individuals should read terms and conditions carefully so that one doesn't make any mistake and use the policy in the right way.

What is the Nomination?

The nomination is a right given to the policyholder that authorizes him/her to appoint a person (usually a close family member) to receive the benefits in the event of the death of the life assured. The person who is appointed by the policyholder to receive the benefit is called a Nominee. The nomination is governed under Section 39 of the Insurance Act, 1938.

Types of Nominees

Under the life insurance policy , the policyholder nominates a person who is entitled to receive the benefits in case something happens to the life assured. Some of the different types of nominees given below:

Beneficial Nominees

As per the law, any immediate family member (like spouse, children or parents) nominated by the policyholder is entitled to receive the monetary benefits and will be the beneficial owner of the claim benefits. It is important to note that only immediate family members can be termed as Beneficial Nominees.

Minor Nominees

Many individuals appoint their children as beneficiaries of their life insurance policies. Minor nominees (who are less than 18 years of age) are not considered eligible to handle claim amounts. For this, the policyholder needs to assign an appointee or custodian. The claim amount is paid to the appointee until the minor turns 18.

Non-family Nominees

These types of nominees can be distant relatives or even friends as the beneficiary of the life insurance policy.

Changing Nominees

Policyholders can change their nominees as many times as they want, but the latest nominee should supersede all previous ones.

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Key Points to Know Regarding Nomination

  • The nomination is possible only when the policyholder and life assured are the same. In case, the policyholder and life assured are different, the claim benefits will be availed by the policyholder only.
  • The nominee cannot ask for changes/modifications to the policy.
  • There can be more than one nominee in the policy.
  • In the successive nomination, if the life assured appoints person A to be the first person to receive the claim benefits in case of assured's death and person A is no more, then the claim benefits will be passed to person B. However, if Nominee A and Nominee B have passed away, later Nominee C will be appointed to avail the benefits and so on.

What is Assignment?

Assignment of the policy refers to the transfer of rights, title, and policy ownership from the policyholder to another person or entity. The person involved in assigning/transferring the policy is called assignor, and the person/institution to which it is assigned is called the assignee. The assignment is regulated under Section 38 of the Insurance Act, 1938.

The assignment is categorized under two different types, i.e. Absolute Assignment and Conditional Assignment.

Absolute Assignment

Under the absolute assignment, all rights, title and interest are transferred by the assignor to an assignee without reversion to the assignor (in case of any event). It shifts the ownership of the insurance policy to other parties without any terms and conditions. This assignment is usually done for money consideration such as raising a loan, out of love or affection towards family members.

Conditional Assignment

It means that the transfer of rights will happen from the Assignor to the Assignee subject to certain terms and conditions. If the conditions are fulfilled, only then the policy will be transferred.

Key Points to know Regarding Assignment

  • Under the assignment, only the ownership is transferred/changed, not the risk of the policy. This means the life assured is/will be considered as the person insured.
  • The assignment may lead to cancellation of the nomination in the policy only when it is done in favour of the insurance company due to a policy loan.
  • The assignment applies to all the insurance plans except Pensions Plan and Married Women's Property Act (MWP).
  • The assignment is effected through an endorsement on the policy contract.

Difference Between Assignment and Nomination

Let's discuss how assignment differs from nomination.

Nomination and Assignment serve different purposes. The nomination protects the interests of the insured as well as an insurer in offering claim benefits under the life insurance policy. On the other hand, assignment protects the interests of an assignee in availing the monetary benefits under the policy. The policyholder should be aware of both of them before buying life insurance.

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What Is Assignment in Life Insurance Policy?

assignment in life insurance policy

While purchasing a life insurance plan, you might encounter several unfamiliar terms, which can make this process even harder to follow. However, understanding these terms and their functions is essential to make an error-free decision while handling your policy.

Assignment is one such necessary process associated with life insurance, dealing with the transfer of ownership of your policy. It is often confused with a nomination, which refers to naming beneficiaries of your contract. Therefore, you must understand the aspects of assignment in a life insurance policy.

What Is Assignment and Assignee in Life Insurance Policy?

Assignment refers to the process of transferring your privileges as a policyholder to another person or entity such as the bank. Once the ownership is transferred, the former policyholder will have no further authority over it. You can assign your policy for various reasons, for instance to someone you love or to your bank in case you owe debt repayment.

Two other terms related to the assignment process are – assignor and assignee.

Assignor: An assignor is the one who is transferring their policy rights to someone else.

Assignee: An assignee is a person or an institution that receives the policy rights and now has complete control over it.

In many cases where people assign their policies to the bank, they remain the life insured, whereas the bank receives the claim benefit after their demise.

What Are the Types of Assignment in Life Insurance Policy?

Absolute assignment.

In an absolute assignment, you can transfer your life insurance policy ownership to another being without any terms and conditions. Here, the assignor can sign over the entire policy as a gift to their loved ones or if they owe an outstanding debt.

After the transfer procedure is complete, the assignee will be responsible for all policy-related decisions, including paying the outstanding premiums and designating nominees.

For Example,

Suppose you have purchased a ULIP plan to secure your family after you pass away. Now, within a few years, you are in need of urgent financing to support your child’s education.

So, instead of surrendering your policy, you can use it as collateral to seek help from someone. Now you have assigned your insurance plan to a friend (assignee) through an absolute assignment by which your friend can take over all the rights of your policy including paying future premiums.

Conditional Assignment

Condition assignment is a policy where you transfer the life insurance policy rights to an assignee under specific terms and conditions. Therefore, the transfer will only be valid if those conditions are met.

Furthermore, it can also be a temporary transfer, where the policy is transferred back to the assignor once they fulfil the predetermined conditions.

The transfer takes place through a form that mentions the reason and condition of the assignment along with an assigned percentage of the sum assured and who will pay the future premiums.

For Example:

Suppose you have assigned your life insurance policy under conditional assignment to a bank for which you secured a loan. If you repay the loan within the set time, the bank will transfer the policy rights back to you. However, if you fail to repay the EMIs, the bank can surrender your policy and get their money back.

An assignment is a legal process through which policy ownership transfers from an assignor to an assignee. It can be beneficial under multiple circumstances, especially in a financial emergency. Therefore, before you buy a life insurance plan, understand these features since they can help you in the future.

In addition, the assignment of a life insurance policy can also be used as a present to your loved ones. While nomination is where you directly assign beneficiaries to ensure that your loved ones are protected in your absence.

FAQs about Assignment in Life Insurance Policy:

No, the assignment of life insurance only involves the transfer of the policy ownership. That means the original policyholder will continue to be the person insured. Moreover, if they fulfil the conditions (in a conditional assignment), the policy will transfer back to them as before.

An endorsement is a document that you (the policyholder) have to sign while transferring your policy rights to an assignee. It also requires the signature of one witness. After this, you will need to mention the reason for the assignment, along with the conditions (if any). Moreover, further details of the assignee also have to be mentioned.

The liabilities of an assignee vary based on the assignment you choose. For instance, your assignee will be responsible for paying future premiums in an absolute one. Also, the right to get maturity benefits will be transferred to them. On the other hand, for conditional assignment, the liabilities and the rights of your assignee will depend on the specified terms and conditions.

Other Important Features of Life Insurance

  • This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
  • All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
  • Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
  • Digit Insurance
  • ']" itemprop="itemListElement" itemscope itemtype="http://schema.org/ListItem"> Life Insurance
  • ']" itemprop="itemListElement" itemscope itemtype="http://schema.org/ListItem"> Features
  • ']" itemprop="itemListElement" itemscope itemtype="http://schema.org/ListItem"> Assignment in Life Insurance Policy

Last updated: 2024-02-20

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Absolute Assignment

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  • To use the insurance policy as collateral for a loan, with the lender becoming the assignee .
  • To gift the insurance policy to someone else, making the recipient the new policy owner.
  • To change the policyholder due to the original policyholder's inability to maintain the policy.

How to Conduct an Absolute Assignment?

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ABSLI Salaried Term Plan (UIN:109N141V01) is a non-linked non-participating individual pure risk premium life insurance plan; upon Policyholder’s selection of Plan Option 2 (Life Cover with ROP) this product shall be a non-linked non-participating individual savings life insurance plan. 1 LI Age 21, Male, Non Smoker, Option 1: Life Cover, PPT: Regular Pay, SA: ₹ 1 Cr., PT: 10 years, Premium paying term: 10 years, Annual Premium: ₹ 5900/- ( which is ₹ 491.66/month) Premium exclusive of GST. On death, 1 Cr SA is paid and the policy terminates. ADV/9/23-24/1940

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All you need to know about assigning life insurance policy.

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The insured needs to either endorse the policy document or make a deed of assignment and register the same with the insurer.

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  • Conditional assignment: This is done when the insured wishes to pass benefits of the policy to a relative in case of early death or certain conditions. The rights of the policyholder are restored once the conditions are fulfilled.
  • Absolute assignment: This is done as a part of consideration for a loan in favour of the lender/bank/lending institution. In such an assignment, the insured loses his rights in the policy and the absolute assignee can deal with it independently.

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  • Life Insurance Glossary
  • Absolute Assignment

What is Absolute Assignment in Life Insurance?

<lingo>In life insurance, the term absolute assignment refers to the transfer of all interest, rights, and ownership of an asset — in this case, the life insurance policy. This decision is irrevocable, which means it cannot be changed once it is in place. It also applies both to the present and in the future. For those who are purchasing a life insurance policy, it is important to look for a clause like this in the details and to understand what it means to use absolute assignment. In short, all rights and ownership of the policy are being given to another person, specifically listed in the policy.</lingo>

Absolute Assignment Clearly and Briefly Explained

There are numerous reasons why you may wish to pursue an absolute assignment. For example, it may be used in the process of providing collateral for a loan to a lender. In addition to this, some may elect to use this when you wish to donate the proceeds from your life insurance policy to a charity or award them to a specific purpose after your death.

<twitter>In life insurance, the term absolute assignment refers to the transfer of all interest, rights, and ownership of an asset — in this case, the life insurance policy. </twitter>

One way to look at absolute assignment is that it allows you to transfer ownership — all ownership — to another party. When you make this transfer, you remain covered under the life insurance policy. However, the new owner of the policy has the right to make changes to it. For example, they can change the beneficiary of the policy. Most often, this will be done to change the beneficiary of the life insurance policy to the new owner’s name. In addition, the new owner now has the ability to make all decisions regarding the underlying assets within the investment. The only thing that the new owner cannot do is to eliminate the coverage of the plan.

When absolute assignment occurs, you continue to make payments on it. One common use of this is when you are taking out a loan and the bank is concerned about your age or health. They may require you to take out a life insurance policy and assign absolute assignment. This would help cover the value of the loan should you die while it is in place.

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Conditional Assignment of a Life Insurance Policy

Conditional Assignment means that the Transfer of Rights will happen from the Assignor to the Assignee subject to certain terms and conditions. If the conditions are fulfilled then only the Policy will get transferred from the Assignor to the Assignee.

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The process of transferring rights of a Life Insurance Policy is called Assignment. There are 2 types of Assignment:

  • Absolute Assignment
  • Conditional Assignment

Conditional Assignment means that the Transfer of Rights will happen from the Assignor to the Assignee subject to certain terms and conditions. If the conditions are fulfilled then only the Policy will get transferred from the Assignor to the Assignee. Or the policy will get transferred from the Assignor to the Assignee till certain conditions are fulfilled. Once the conditions are fulfilled, the policy automatically gets transferred back to the original owner, i.e. the Assignor.

Let’s take an example:

Rahul owns a Life Insurance Policy of Rs 5 lakhs. He needs to take a loan for his daughter’s school admission. He thought of doing so by taking a loan from the insurer itself or any bank against his Life Insurance Policy of Rs 5 lakhs that he owned.

However, to take a loan from the insurer itself or any bank, he needed to transfer the rights of the Insurance Policy to that entity. Thus he would have had to perform Conditional Assignment of the policy to that Bank. Then the bank would be able to pay out the loan money to him by taking the Insurance Policy as collateral. Thus, if Rahul failed to repay the loan, then the bank would surrender the policy and recover their money.

Once Rahul’s loan is completely repaid, then the policy would automatically come back to Rahul. In case, Rahul died before completely repaying the loan, then also the bank can surrender the policy to get their money back. This type of Assignment is called Conditional Assignment.

absolute assignment of a life insurance policy

Example in real life of Conditional Assignment happens in case of an Insurance Policy being taken by the employer as a perquisite for the employee and it would be given only if he stays with the company for at least 5 years. Then the policy would be purchased by the employer on the employee’s name, but it would get transferred to him only when he completes 5 years. Once the employee completes 5 years of service, the policy gets transferred to him. This type of assignment or transfer of rights of a Life Insurance Policy is called Conditional Assignment.

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Sachin Telawane is a Content Manager and writes on various aspects of the Insurance industry. His enlightening insights on the insurance industry has guided the readers to make informed decisions in the course of purchasing insurance plans.

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What is Assignment and Nomination in Life Insurance?

‘Assignment’ and ‘Nomination’ are two most common terms used in a life insurance policy document. Let us understand the importance of these two terms in-detail.

Future Generali

By Future Generali Updated On Oct 06, 2022

What is Assignment and Nomination in Life Insurance?

Your life insurance policy is a contract between you (insured) and the insurance company (insurer). The contract is filled with jargon. To the extent possible, we must understand all the terms mentioned in the policy bond (certificate). ‘Assignment’ and ‘Nomination’ are two most common terms used in the insurance world.

For instance, in the event that you plan to apply for a home loan, your home loan provider will surely use these terms. Hence, it is best to be sure and understand exactly what the terms mean before you make a decision to buy the policy.

What is assignment in life insurance?

A life insurance policy can be assigned when rights of one person are transferred to another. The rights to your insurance policy can be transferred to someone else for various reasons. The process is known as assignment.

An “assignor” (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.

In the event rights are transferred from an Assignor to an Assignee, the rights of the policyholder are canceled, and the Assignee becomes the owner of the insurance policy.

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.

Types of Assignment

There are two ways to assign an insurance policy. They are as follows:

1. Absolute Assignment

During this process, the rights of the assignor (policyholder) will be completely transferred to the assignee (person to whom the policy rights have been transferred). It is not subject to any conditions.

As an example, Mr. Rajiv Tripathi owns a Rs 1 Crore life insurance policy. Mr. Tripathi wants to gift his wife this policy. Specifically, he wants to make “absolute assignment” of the policy in his wife's name, so that the death benefit (or maturity proceeds) can be paid directly to her. After the absolute assignment has been made, Mrs. Tripathi will own this policy, and she will be able to transfer it to someone else again.

2. Conditional Assignment

As part of this type of 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.

For instance, a term insurance policy of Rs 50 Lakh is owned by Mr. Dinesh Pujari. Mr. Pujari is applying for a home loan of Rs 50 Lakh. For the loan, the banker asked him to assign the term policy in their name. To acquire a home loan, Mr. Pujari can assign the insurance policy to the home loan company. In the event of Mr. Pujari’s death (during the loan tenure), the bank can collect the death benefit and get their money back from the insurance company.

Mr. Pujari can get back his term insurance policy if he repays the entire amount of his home loan. As soon as the loan is repaid, the policy will be transferred to Mr. Pujari.

In the event that the insurer receives a death benefit that exceeds the outstanding loan balance, the bank will be paid from the difference between the death benefit and the loan and the balance will be paid directly to the nominee. In the above example, the remaining amount (if any) will be paid to Mr. Pujari’s beneficiaries (legal heirs/nominee).

Key Points to know Note About Assignment

In regards to the assignment, the following points should be noted:

  • A policy assignment transfers/changes only the ownership, not the risk associated with it. The person assured thus becomes the insured.
  • The assignment may lead to cancellation of the nomination in the policy only when it is done in favour of the insurance company due to a policy loan.
  • Assignment for all insurance plans except for the pension plan and the Married Women's Property Act (MWP), can be done.
  • A policy contract endorsement is required to effect the assignment.

What is nomination in life insurance?

Upon the death of the life assured, the nominee/ beneficiary (generally a close relative) receives the benefits. Policyholders appoint nominees to receive benefits. Under the Insurance Act, 1938, Section 39 governs the nomination process.

Types of Nominees

In a life insurance policy, the policyholder names someone who will receive the benefits in the event of the life assured's death. Here are a few types of nominees:

1. Beneficial Nominees

In accordance with the law, the beneficiary of the claimed benefits will be any immediate family member nominated by the policyholder (like a spouse, children, or parents). Beneficiary nominees are limited to immediate family members of the beneficiary.

2. Minor Nominees

It is common for individuals to name their children as beneficiaries of their life insurance policies. Minor nominees (under the age of 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.

3. Non-family Nominees

Nominees can include distant relatives or even friends as beneficiaries of a life insurance policy.

4. 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 Points to Note About Nomination

In regards to the nomination, the following points should be noted:

  • In order to nominate, the policyholder and life assured must be the same.
  • In the case of a different policyholder and life assured, the claim benefits will be paid to the policyholder.
  • Nominations cannot be changed or modified.
  • The policy can have more than one nominee.
  • As part of successive nominations, if the life assured appoints person “A” as the first person to receive benefits. Now, in the event of the life assured’s death after person “A” dies, the claim benefits will be given to person “B”. The benefits will be available to Nominee “C” if Nominee “A” and Nominee “B” have passed away.

What is the difference between nomination and assignment?

Let's talk about the differences between assignment and nomination.

Nomination and Assignment serve different purposes. The nomination protects the interests of the insured as well as an insurer in offering claim benefits under the life insurance policy. On the other hand, assignment protects the interests of an assignee in availing the monetary benefits under the policy. The policyholder should be aware of both of them before buying life insurance.

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absolute assignment of a life insurance policy

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absolute assignment of a life insurance policy

What is ‘Assignment’ of Life Insurance Policy?

Insurance is a contract between the insurance company (insurer) and you (policyholder) . It is a contract with full of jargon. As much as possible, we must try to understand all the insurance terms mentioned in the policy bond (certificate) . One such insurance jargon which is mostly used is Assignment .

If you are planning to apply for a home loan, your home loan provider may surely use this term. So, what is Assignment? Why assignment of a life insurance policy is required? What are different types of assignment? What are the differences between Assignment & Nomination?

What is Assignment?

Assignment of a life insurance policy means transfer of rights from one person to another. You can transfer the rights on your insurance policy to another person / entity for various reasons. This process is referred to as ‘ Assignment ’.

The person who assigns the insurance policy is called the Assignor (policyholder) and the one to whom the policy has been assigned, i.e. the person to whom the policy rights have been transferred is called the  Assignee .

Once the rights have been transferred from the Assignor to the Assignee, the rights of the policyholder stands cancelled and the assignee becomes the owner of the insurance policy.

Assigning one’s life insurance policy to a bank is fairly common. In this case, the bank becomes the policy owner whereas the original policyholder continues to be the life assured on whose death the bank or the policy owner is entitled to receive the insurance money.

Types of Assignment

The assignment of an insurance  policy can be made in two ways;

  • Example : Mr. PK Khan owns a life insurance policy of Rs 1 Crore. He would like to gift this policy to his wife. He wants to make ‘absolute assignment’ of this policy in his wife’s name, so that the death benefit (or) maturity proceeds can be directly paid to her. Once the absolute assignment is made, Mrs. Khan will be the owner of the policy and she may again transfer this policy to someone else.
  • Example : Mr. Mallya owns a term insurance policy of Rs 50 Lakh. He wants to apply for a home loan of Rs 50 Lakh. His banker has asked him to assign the term policy in their name to get the loan. Mallya can conditionally assign the policy to the home loan provider to acquire a home loan. If Mallya meets an untimely death ( during the loan tenure) , the banker can receive the death benefit under this policy and get their money back from the insurance company.

Conditional assignment life insurance pic

  • In case if the death benefit received by the banker is more than the outstanding loan amount, the insurer will pay the bank the outstanding dues and pay the balance to the nominee directly. The balance amount (if any) will be paid to Mallya’s beneficiaries ( legal heirs / nominee) .

How to assign a life insurance policy?

The Assignment must be in writing and a notice to that effect must be given to the insurer. Assignment of a life insurance policy may be made by making an endorsement to that effect in the policy document (or) by executing a separate ‘ Assignment Deed ’.  In case of assignment deed, stamp duty has to be paid. An Assignment should be signed by the assignor and attested by at least one witness.

Download absolute assignment deed sample format / conditional assignment deed format.

application for assignment life insurance policy pic

Nomination Vs Assignment

Nomination is a right given to the policyholder to appoint a person(s) to receive the death benefit (death claim) . The person in whose favor the nomination is effected is termed as ‘nominee’. The nominee comes into picture only after the death of the life assured (policy holder) . The nominee will not have the absolute right over the money (claim proceeds) . The other legal heirs of the policy holder can also recover money from the nominee.

(However, as per Insurance Laws (Amendment) Act, 2015 – If an immediate family member such as spouse / parent / child is made as the nominee, then the death benefit will be paid to that person and other legal heirs will not have a claim on the money)

Under nomination, the rights of the policyholder are not transferred. But, assignment is transfer of rights, interest and title of the policy to some other person (or) entity. To make assignment, consent of the insurer is also required.

Important Points

  • Assignment of policies can be done even when a loan is not required or for some special purposes.
  • If you assign the policy for other purpose other than taking a loan, the nomination stands cancelled.
  • If the policy is assigned, then the assignee will receive the policy benefit. Death benefit will be paid to the Nominee, in case the policy is not assigned.
  • The policy would be reassigned to you on the repayment of the loan (under conditional assignment) .
  • Types of insurance policies used for assignment purpose to get business loans, generally include an endowment plan, money back policy or a ULIP. Home loan providers generally ask for the assignment of Term insurance plans on their names. (The term plan tenure should be more than the home loan tenure)
  • An assignment of a life insurance policy once validly executed, cannot be cancelled or rendered in effectual by the assignor. The only way to cancel such assignment would be to get it re-assigned by the assignee in favor of the assignor.
  • You can also raise a loan against your policy from your insurance company itself. In this case, your policy would have to be assigned to insurance company.
  • An insurer may accept the assignment or decline. (The insurer shall, before refusing to act upon the endorsement, record in writing the reasons for such refusal and communicate the same to the policy-holder not later than thirty days from the date of the policy-holder giving notice of such transfer or assignment)
  • In case of death of the absolute Assignee (to whom the policy rights have been transferred under absolute assignment) , the rights under the policy will be transferred to the legal heirs of the assignee.
  • You can also assign a life insurance policy under Married Women’s Property Act . (At the time of making the application (buying a policy), a separate MWPA form has to be filled by the proposer for it to be covered under MWP Act. Do note that the existing life insurance policies cannot be assigned under MWP Act)
  • Partial assignment or transfer of a policy can also be made. But banks will accept any of your life insurance policies as long as the sum assured is equal to or greater than the loan amount.

Hope you find this post informative and do share your comments.

(Image courtesy of Stuart Miles at FreeDigitalPhotos.net)

About The Author

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Sreekanth Reddy

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Can a LIC policy be assigned to someone not related by blood??

' data-src=

Dear Chowdhury, Yes, it is possible. However, Assignment is not permitted on all life insurance policies issued under How to buy Term Life Insurance under Married Women’s Property Act?

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Very useful and gathered more knowledge

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Hi, I got a question in CFP EXAM 5( case study paper) with regard to assignment of money back policy to a minor. I would like to know can a conditional assignment be made to a minor and if yes what about the premium that is yet to be paid? and would a guardian need to be appointed till the minor attains majority? and is it possible that an absolute assignment can be made?

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Dear Dhaarini,

Where an assignment is made in favour of minor, the policy can not be dealt with during the minority of the assignee, even with consent of natural guardian or appointed guardian. This means minor assignee cannot raise loan, surrender or further assign the policy during his/her minority.

If the assignment is in favour of a minor, in the event of claim, policy money cannot be paid to him, as he cannot give valid discharge. It is therefore desirable that where the assignee is minor, testamentary guardian should be appointed in respect of all the properties of such minor including the policy moneys. The father i.e. natural guardian of the minor can only appoint the testamentary guardian. The appointment can be done by a separate instrument or on the back of the policy.

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What if a wife has taken a policy in the name of his husband and put the nominee herself and also pays all the premiums herself, and now they are taking divorce. So, now can husband assign the policy to her and what benefits she can receive after assignment. Can she withdraw tha amount of the policy??

Dear Monika, Yes, he can make an Absolute assignment in the name of Wife..

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Under Life Assurance one can assign a policy only if that policy is a policy of his/her own life. Here wife has taken a policy on her husband life and hence assignment does not arise. In the event of death of her husband she receives the death benefit irrespective of her relationship at the time of death. This is because under Life Assurance the Insurable Interest is required at the proposal stage and needs not be present at the claim stage.

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I wanna give my policy to new owner

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A assigned his policy to his brother B and B is paying premiums. A’s nominee is his father. What will happen if B dies?

Dear Mr Naidu, May I know what type of Assignment is this??

A assigned his policy to his brother B, out of love and affection as absolute assignment. Whose life is covered?. What happens if B dies?

Dear Mr Naidu, If the assignee (Mr B) dies, then his/her legal heirs will be entitled to the policy money. Kindly note that an assignee cannot make a nomination on the policy which is assigned to him.

“Absolute assignment is generally made for valuable consideration e.g. raising of loan from an individual / institution. This assignment has the effect of passing the title in the policy absolutely to the assignee and the policyholder in no way retains any interest in the policy. The absolute assignee can deal with the policy in any manner he likes and may even transfer his interest to another person or surrender the policy. Under absolute assignment when the assignee (Mr B) dies the benefits go to the legal heirs of the assignee and not to the heirs of the life assured.”

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What is the procedure to get the policy assigned? How much time does it take?

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Thanks for this. I always like to use study materials by Indians in preparing for my professional exams. The contents here are superb and easy to understand.

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Once assignment is done, on whose name Renewal receipts and PPC will be generated.

Dear Gayu ..in the name of Policyholder only.

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My colleagues were looking for USPS PS 1000 this month and were informed of an online platform that hosts a ton of fillable forms . If people are wanting USPS PS 1000 too , here’s https://goo.gl/Qqo6in .

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Dear Sreekanth, I am having an LIC policy for the past 10 year. now i would like to assign the same to my mother. Now after the assignment, whose life is covered and who gets all the benefit? Do i have to appoint a new nominee after the assignment?

Dear Bhavik ..Life cover will be in your name only. Your mother can get the benefits. You can make her as the nominee.

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If policy assigned to absolute assignment from A to B. B is the assignee of the policy and he have all rights of the policy. After assignment who will have a life cover A or B. Who will get the death benefits

Dear Senthil, Life cover – A. Beneficiary – B.

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Thanks for this information, Let me know who will pay the remaining premium after assignment.and what are the other reasons for assignment except loan and gift. Manish

Dear Manish ..The policy holder only has to pay the premium.

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I have a ULIP assigned to my home loan. I have paid two annual premiums till now. If I dont pay the next premium, will it have any impact on my home loan ? I know that my ulip will get discontinued in this case but can the bank force me to pay the premium legally ?

Dear Kalis, If sum assured falls below the outstanding loan amount then you banker may ask you to assign another policy or pay the premiums on this one.

Thanks. Sum assured is already below the loan amount. In this case, can bank take any legal action against me if I don’t pay the premium?

Dear Kalis..Why do you want to take this risk?

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Who will have to pay tax if single premium ULIP where premium is >20% of sum assured is assgned to spouse & she then sureender it.

Dear Vishal ..The insured (policyholder)..

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my father aged 72 has taken a ULIP policy on my Child with coverage 10 lakhs .But now he would like to Assign the policy to my mother’s Name aged 67.

Please Clarify weather the life coverage and policy benefits will be transferred to my Mother or will it continue with my son.

Dear Nisha, May I know who is the ‘insured’ in this policy? Is the child just a nominee to the policy? “If he assigns the policy for other purpose other than taking a loan, the nomination stands cancelled. If the policy is assigned, then the assignee will receive the policy benefit. “

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Hi.. Really nice blog.very informative and useful. I liked the way You explained very briefly about Assignment’ of Life Insurance Policy.

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Hi Srikanth,

Nice article on Assignment!

I Just wanted to know If i nominate my spouse for the life insurance or nominate my child and appoint my spouse how these to things are different in terms claim settlement of life insurance.

Ideally I may want my spouse to look-after my child education until they turn major and they do not misuse the claim amount.

Please let me know if possible your contact number so that we discuss further..

Please suggest.

Thanks, Shravan

Dear Shravan, If you are planning to buy a new Term plan, you can assign the policy under MWP Act by mentioning the Percentages (share in death benefits) among your legal heirs (spouse & kids). You also have the option to write a WILL and give detailed instructions about how the claim amount (if any, on such policy) should be used or allocated.

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Dear Sreekant, Thanks for such valuable information. Please do correction on your post that the existing life insurance policies cannot be assigned under MWP Act. Pl correct me if I am wrong. Please let me know that even if I assign the policy unconditionally to the bank for home loan purpose, after repaying the home loan successfully, the bank should re-assign the policy to me. If it does not do this, what options do I have? Thanks again.

Dear Vivek, Yes, only new insurance policies can be assigned (while purchasing new ones) under MWP. I should have written the sentence as ‘You can also assign a new life insurance policy under….’ Thank you for pointing this out. (I have provided all the details about MWP act in another article).

If a policy is assigned with absolute assignment, it cannot be cancelled. It can be done only by another valid re-assignment. So, the banker has to re-assign it after the repayment of loan. When you do not wish to give away your complete control over policy, do not go in for absolute assignment.

thanks for prompt response.

absolute assignment of a life insurance policy

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IMAGES

  1. Prudential absolute assignment form: Fill out & sign online

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  2. Absolute Assignment To Trust

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  3. Metlife Absolute Assignment Trust

    absolute assignment of a life insurance policy

  4. Guidelines for Collateral Assignment of Life Insurance

    absolute assignment of a life insurance policy

  5. Absolute Assignment Life Insurance Policy

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  6. Assignment Of Proceeds Of Life Insurance Policy

    absolute assignment of a life insurance policy

COMMENTS

  1. Absolute Assignment of Life Insurance Policies

    An absolute assignment of a life insurance policy involves transferring all rights and ownership decisions to another party. You could have one of several reasons for wanting to do this; for...

  2. Absolute vs Collateral Assignment of Life Insurance

    What is absolute assignment of life insurance? Absolute assignment in insurance involves signing over your entire policy to another person or entity. The person who is selling or gifting the policy is known as the assignor, and the individual or individuals who receive it are the assignee.

  3. 2 Ways to Transfer Ownership of a Life Insurance Policy

    A policyowner can transfer either all or only some of the "bundle of rights" that comprises a life insurance policy to almost any person or entity. The two basic ways of making a lifetime transfer of a policy are: (1) the absolute assignment; and (2) the collateral assignment. An absolute assignment, as its name implies, transfers all the ...

  4. Absolute Assignment of a Life Insurance Policy

    Absolute Assignment of a Life Insurance Policy Absolute Assignment means complete Transfer of Rights. The person who transfers the rights is called the Assignor and the person to whom the rights are being transferred is called the Assignee. 1887 views / 2 mins 32 secs Last Updated - January 4, 2023 Listen to this article

  5. A Collateral Assignment of Life Insurance

    A collateral assignment of life insurance is a conditional assignment appointing a lender as an assignee of a policy. Essentially, the lender has a claim to some or all of the death benefit...

  6. Absolute Assignment

    Absolute Assignment is a legal instrument that allows the owner of a life insurance policy or other valuable assets to transfer all rights and ownership of the asset to a designated assignee. This transfer of ownership is comprehensive and unrestricted, giving the assignee complete control and authority over the asset.

  7. What Is a Life Insurance Assignment?

    Absolute Assignment. When you make an absolute assignment, the rights, title and interest in the life insurance policy pass on to another party without the possibility of reversal.

  8. What Is 'Absolute Assignment'

    An absolute assignment is a legal term used to describe the transfer of ownership of a life insurance policy from one party to another. In this process, the original policyholder or owner gives up ...

  9. What Is Collateral Assignment of Life Insurance?

    What is collateral assignment of life insurance? Life insurance can act as collateral for you to secure a loan. With a collateral assignment, the payout from your insurance goes to pay your loan balance first, and your loved ones will get to keep any remaining money.

  10. Life Insurance Assignment

    There are two parties to a collateral assignment. Assignor - Is the owner of the life insurance policy. Assignee - Is the lender. Life insurance companies have standardized forms used for this purpose. The owner completes the form and sends it to the lender for review and signature. Once complete, you will send the form to the insurance ...

  11. Absolute Assignment to Individual

    Absolute Assignment to Individual Metropolitan Life Insurance Company Please read instructions on page 5 before completing and executing this form. SECTION 1: Group Life Insurance Program Program of (Name of Employer/Policyholder) Insured Information Insured-First Name Middle Name Address Last Name City Social Security Number State ZIP

  12. What is an Absolute Assignment?

    Updated: 09 June 2023 What Does Absolute Assignment Mean? Absolute assignment refers to a policyholder transferring his or her ownership of a policy to another party. That transfer means that all of the coverage within that policy will now go to the newly named party.

  13. Assignment vs Nomination in Life Insurance

    The assignment is categorized under two different types, i.e. Absolute Assignment and Conditional Assignment. Absolute Assignment. Under the absolute assignment, all rights, title and interest are transferred by the assignor to an assignee without reversion to the assignor (in case of any event). It shifts the ownership of the insurance policy ...

  14. Understanding What is Assignment in Life Insurance Policy

    An assignment is a legal process through which policy ownership transfers from an assignor to an assignee. It can be beneficial under multiple circumstances, especially in a financial emergency. Therefore, before you buy a life insurance plan, understand these features since they can help you in the future. In addition, the assignment of a life ...

  15. Absolute Assignment

    What is Absolute Assignment? Absolute Assignment in insurance refers to the complete transfer of all rights, liabilities, and benefits of a life insurance policy from the policy owner (assignor) to another person or entity (assignee). After the assignment, the assignee becomes the new policy owner and is entitled to all the benefits such as ...

  16. All you need to know about assigning life insurance policy

    Conditional assignment: This is done when the insured wishes to pass benefits of the policy to a relative in case of early death or certain conditions. The rights of the policyholder are restored once the conditions are fulfilled. Absolute assignment: This is done as a part of consideration for a loan in favour of the lender/bank/lending institution. In such an assignment, the insured loses ...

  17. What is Absolute Assignment? Explaining Insurance

    In life insurance, the term absolute assignment refers to the transfer of all interest, rights, and ownership of an asset â€" in this case, the life insurance policy. This decision is irrevocable, which means it cannot be changed once it is in place. It also applies both to the present and in the future.

  18. Conditional Assignment of a Life Insurance Policy

    The process of transferring rights of a Life Insurance Policy is called Assignment. There are 2 types of Assignment: Absolute Assignment; Conditional Assignment; Conditional Assignment means that the Transfer of Rights will happen from the Assignor to the Assignee subject to certain terms and conditions. If the conditions are fulfilled then ...

  19. Flashcards

    A life insurance guaranteed insurability rider gives the insured the right, without proving insurability, to a. purchase life insurance policies on his children as they are born b. purchase life insurance on a spouse after becoming married c. purchases additional life insurance at anytime d. periodically purchase additional insurance

  20. chapter 4 Life provisions exam Flashcards

    Study with Quizlet and memorize flashcards containing terms like The absolute assignment of a life insurance policy results in, How is the insured protected if a payor benefit rider is attached to the life insurance policy?, A life insurance policy that contains an accelerated (living) benefit rider will provide funds if the and more.

  21. What is Assignment and Nomination in Life Insurance?

    Absolute Assignment During this process, the rights of the assignor (policyholder) will be completely transferred to the assignee (person to whom the policy rights have been transferred). It is not subject to any conditions. As an example, Mr. Rajiv Tripathi owns a Rs 1 Crore life insurance policy. Mr. Tripathi wants to gift his wife this policy.

  22. Assignment of Policy

    Assignment of a life insurance policy means transfer of rights from one person to another. You can transfer the rights on your life insurance policy to another person/entity for various reasons. This process is referred to as Assignment and is governed under Policies of Assurance Act (Chapter 392). ... Deed of Absolute Assignment (Single ...

  23. Assignment of Life Insurance Policy : Types, Details & Rules

    Absolute Assignment - Under this process, the complete transfer of rights from the Assignor to the Assignee will happen. There are no conditions applicable. Example: Mr. PK Khan owns a life insurance policy of Rs 1 Crore. He would like to gift this policy to his wife.