Section 38 of Insurance Act, 1938 has made provision for assignment or transfer of rights under a life insurance policy.
A transfer or assignment of a policy of life insurance, may be made only by an endorsement upon the policy bond itself or by a separate instrument, signed in either case by the transferor or assignor or his duly authorized agent and attested by at least one witness, specifically setting forth the fact of transfer or assignment. Assignment can be made with or without consideration.
Where the assignment is made in favour of the Insurer against loan granted under the policy, the right of the insurer is limited to the loan amount with interest outstanding under the policy. In case of death of the policy-holder during the term of the policy, the balance amount under the policy, after deducting the loan, will be given to the nominee/claimant.
Assignment is of two types : -
- Conditional Assignment
- Absolute Assignment
Under Conditional Assignment, the policy may be transferred back to the original policyholder, after happening of a specified event or fulfilling the condition laid down at the time of assignment. Such policy will be re-assigned in favour of the assignor by the assignee.
Under Absolute Assignment, the rights are transferred in favour of assignee completely and it can not be reverted back. The payment under the policy will be made to the assignee at the time or maturity or earlier death of the life assured.
While assigning a policy, a notice in writing of the transfer or assignment will be given to the Insurer to register such assignment. Such notice is required to establish the priority of claim, if needed.
Assignment automatically cancels the nomination made earlier under life insurance policy.