Life insurance is not just about protecting your family’s future—it can also serve as a useful financial asset while you are still around. One of the lesser-known features of life insurance is the ability to transfer your policy rights to another person or institution. This process, known as insurance policy assignment, can help you secure loans or transfer benefits to a family member. Here is everything you need to know about how it works, why you might consider it, and what to keep in mind.
What is an insurance policy assignment?
In simple terms, insurance policy assignment means transferring the ownership rights of your life insurance policy to another party. Once assigned, the new owner—known as the assignee—gains certain rights over the policy, such as receiving the maturity proceeds or the life insurance premiums in some cases.
The person assigning the policy is called the assignor. Assignments can be made to banks, lending institutions, or individuals, depending on your purpose.
Why would you assign a life insurance policy?
There are several reasons you may choose to assign your policy:
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To secure a loan: Many people assign their policy to a bank as collateral for a loan. This gives the lender reassurance that the loan will be repaid, as the claim amount will be paid directly to them in case of an eventuality.
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To transfer benefits: You might want to pass the policy benefits to a spouse, child, or other relative, ensuring their financial security.
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Estate planning: Assigning the policy can be part of a broader financial plan to distribute your assets in a structured way.
Types of assignments
There are two main types of insurance policy assignment in India:
Conditional assignment
This type of assignment is made when you want the policy to be transferred under specific conditions. For example, you might stipulate that the policy should only be transferred to a relative if you are no longer around or if certain events occur. Once the conditions are fulfilled, the rights of the policyholder may be restored or passed on as specified.
Absolute assignment
Here, the policy rights are transferred completely and permanently to the assignee. This is commonly used when you assign your policy to a bank or financial institution as security for a loan. Once completed, the assignee has full control over the policy and its benefits.
Process of assigning a policy
Assigning a life insurance policy involves a few clear steps:
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Endorsement or deed: You can either endorse the assignment on the original policy document or create a separate deed of assignment.
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Registration: The assignment must be registered with the insurance company. You will need to fill out a prescribed form, mentioning whether the assignment is absolute or conditional.
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Notice: The insurer will record the assignment and send written confirmation to you, the assignor.
It is important to note that if you choose to create a separate deed, stamp duty may be applicable, while endorsements on the policy document are typically exempt.
Documents required
When registering an assignment, you will need to provide:
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Proof of income
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A self-attested copy of your photo identity and address proof
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A self-attested copy of your PAN card
These documents help the insurer verify your identity and the authenticity of the transaction.
Fees and acknowledgement
Most insurers charge a small fee for processing the assignment. Once approved, the assignee can request an acknowledgement confirming that the assignment has been recorded in the insurer’s records.
The insurer’s right to decline
While assignments are generally straightforward, insurers do have the right to decline a request if they believe the assignment is not genuine, is against public interest, or could potentially be misused (for example, for trading life insurance policies). In such cases, the insurer will notify you with the reasons for refusal.
Impact on life insurance premiums
Assigning your policy does not change your life insurance premiums. You, as the original policyholder, are still responsible for paying the premiums regularly to keep the policy active. If you stop paying, the policy may lapse, and the assignment will no longer serve its purpose.
Conclusion
Insurance policy assignment is a flexible feature of life insurance that allows you to make the most of your policy during your lifetime. Whether you want to secure a loan or transfer benefits to a loved one, understanding how assignment works can help you use your policy more effectively. If you are considering this option, it is always a good idea to speak with your insurer or a financial adviser to ensure the process aligns with your broader financial goals and commitments.
