A life insurance policy is seen as an inflexible product that binds the policyholder to certain terms and conditions throughout the life of the policy. The reason for such a rigid condition in the insurance contract is the risk factor which is the very purpose of insurance business. Insurers want to continue their relationship with policyholders so that the policyholder’s family is not deprived of financial protection.
However, insurers have provided liquidity through such arrangements as a loan facility once the policy has acquired the paid-up value, contract surrender for immediate liquidity, installment payments, etc. There is also a less popular provision in the form of an assignment of a life insurance policy which offers several options for the policyholder to convert the intrinsic value of a policy at a certain point in time into cash flow for itself. .
Assignment of life insurance
The assignment of a life insurance contract is an act consisting in transferring its rights to the sums of the contract to another entity, an individual or an institution for various valid reasons in law. A very simple example of an assignment is the practice of borrowing money from a bank for the purpose of buying a house by assigning your life insurance policy to the bank. The policy is considered by the bank to be acceptable collateral, subject to certain simple conditions.
There are two types of assignments, absolute and conditional. The first involves the transfer of all the rights and title of the policyholder to another person or entity, while the second represents a limited and mainly short-term transfer of his rights and title to the assignor. when certain conditions are met. Assignment is a legal process of transferring ownership of the policy even if the risk to the life of the policyholder persists and they continue to pay the premium to keep the policy in force, which also results in a gradual increase. the intrinsic value of the policy.
The absolute assignment cannot be revoked by the policyholder, therefore the death claim or the proceeds of the claim at maturity will have to be paid to the assignee by the insurer. The deed of assignment must therefore be brought to the attention of the insurer. After certain conditions are met, such as repayment of the full loan amount, the assignee must assign the policy to the policyholder so that the proceeds of the claim are paid to the policyholder or his agent.
Execution of the mission
The assignment must be executed on stamped paper as the case may be at the place of performance of the assignment. However, if the assignment is executed on the body of the policy document, such stamp paper is not required. It is advisable to execute the assignment on the police bond so that the assignment does not escape the insurer’s attention when settling claims. Insurers very often find that banks overlook the need to reallocate the policy in favor of the borrower after the loan is fully paid off. In such situations, the settlement of the claim is delayed and the policyholder or claimants face undue hassle in obtaining their due amount. In the event of a death claim where the reallocation was not executed or suggested to the insurer, the proceeds of the claim go to the banks and then the banks have to undertake numerous approvals to reimburse the money to the claimants. Here, a point should be noted by lenders as well as policyholders: the appointment under a policy is canceled upon assignment and after reassignment a new appointment must be made.
As a rule, this provision of the law is ignored by both the assignor and the assignee. No new appointment would mean obtaining an inheritance certificate and several accessories attached causing enormous hardship to all concerned. Appointment is the policyholder’s right to appoint a person who can receive the amount of the claim in the event of death during the term of the policy. The nominee gives a valid discharge to the insurer when it receives such a claim amount under a policy.
The assignment provision thus allows the insured to benefit from the acquired monetary value of a contract over a period of time without repurchasing a contract and without losing the benefit of risk coverage for his relatives. A life insurance policy is a guarantee that is highly acceptable to financial institutions, and a policyholder can use their existing policies for the purpose of obtaining loans during their working life.
On the other hand, the assignment of a whole life insurance policy to the wife or husband, children and grandchildren is the safest way to transfer wealth after death. No one can dispute such a legacy of wealth. The assignee will have an absolute right to the proceeds of the policy.
The author is the former Managing Director and CEO of Star Union Dai-ichi Life Insurance