Nomination

Nomination

What is Nomination?

Nomination is the process by which the policyholder (the person who buys the insurance policy) designates one or more individuals (the nominees) who will be entitled to receive the policy benefits (the sum assured and any other applicable amounts) in the event of the policyholder’s death during the policy term.

• The nominee is essentially appointed to receive the funds from the insurance company upon the death of the insured.
• The nomination is typically done at the time of purchasing the policy but can be changed by the policyholder at any point during the policy term before maturity. The latest nomination will supersede any previous ones.
• You can nominate multiple individuals and specify the percentage of the sum assured each nominee should receive.

Who can be a Nominee?

Generally, the policyholder can nominate any person they choose, including:

• Spouse
• Children (minor or major, dependent or independent)
• Parents
• Siblings
• Other relatives or even friends

Beneficial Nominee:

As per the Insurance Laws (Amendment) Act, 2015, if the nominee is the policyholder’s spouse, children, or parents, they are considered beneficial nominees. This is a significant distinction because:

• Beneficial nominees have a better claim to the policy benefits and are considered the rightful owners of the death claim proceeds over any other legal heirs.
• This helps ensure that the intended immediate family members receive the money without prolonged legal disputes.

Minor Nominee:

If a nominee is under the age of 18 (a minor), the policyholder must appoint an appointee (also known as a guardian) who will receive the policy proceeds on behalf of the minor nominee until they reach the age of majority.

Rights of a Nominee:

• The primary right of a nominee is to receive the policy proceeds upon the death of the insured.
• However, being a nominee does not automatically make them the legal heir or the absolute owner of the money, especially if they are not beneficial nominees.
• The nominee acts as a custodian or trustee of the funds and is generally expected to distribute the money according to the laws of succession applicable to the deceased, unless they are beneficial nominees.
• The insurance company is legally obligated to pay the sum assured to the validly nominated beneficiary, which discharges their liability.

Assignment

What is Assignment?

Assignment is the process of transferring the rights, title, and interest in a life insurance policy from the original policyholder (the assignor) to another person or entity (the assignee). Essentially, the ownership of the policy is transferred.

• After a valid assignment, the assignee becomes the new policyholder and has the right to receive the policy benefits, exercise all policy-related options, and even further assign the policy (subject to terms and conditions).
• The original policyholder (assignor) loses all rights and control over the policy once it is assigned.
• Assignment is usually done for specific purposes.

Reasons for Assignment:

• Securing a Loan: A common reason for assignment is to use the life insurance policy as collateral for a loan. The policy is assigned to the lender (e.g., a bank), who becomes the assignee. In case of the policyholder’s death before the loan is repaid, the lender can recover the outstanding amount from the policy proceeds. Once the loan is repaid, the policy can be reassigned to the original policyholder.
• Gifting the Policy: A policyholder might choose to gift their life insurance policy to another individual.
• Business Purposes: In some business scenarios, policies might be assigned as part of financial arrangements or key person insurance.
• Settling Debts: A policy might be assigned to a creditor to settle outstanding debts.

Types of Assignment:

• Absolute Assignment: All rights, title, and interest in the policy are transferred permanently and unconditionally to the assignee. The assignee becomes the absolute owner.
• Conditional Assignment: The transfer of rights to the assignee is subject to certain conditions being met. For example, the policy might be assigned to a lender as security for a loan, and the rights will revert to the assignor upon full repayment of the loan.
• Collateral Assignment: This is a type of conditional assignment where the policy is assigned as security for a debt. The assignee (lender) has a claim on the policy proceeds up to the outstanding debt amount.

Process of Assignment:

• Assignment typically requires a written agreement (assignment deed) signed by the assignor and often the assignee, with at least one witness.
• The assignment must be endorsed on the original policy document or through a separate instrument attached to the policy.
• The insurance company must be formally notified of the assignment in writing, and they will usually record the assignment in their books.
• The insurer may have specific requirements and forms for the assignment process.

Impact on Nomination:

• Generally, an assignment cancels any existing nomination, as the ownership of the policy changes.
• However, there are exceptions. If the policy is assigned back to the original policyholder after a temporary assignment (e.g., after a loan is repaid), the previous nomination might be reinstated or a new nomination can be made.
• If the assignment is in favor of the insurance company (e.g., for a policy loan), the nomination might be suspended or cancelled for the duration of the assignment.

Key Differences Between Nomination and Assignment:

Feature	Nomination	Assignment
Purpose	To designate who will receive the death benefits.	To transfer ownership and rights of the policy.
Ownership	Policyholder retains ownership. Nominee has no ownership rights.	Ownership is transferred from the assignor to the assignee.
Rights	Nominee has the right to receive the claim amount upon the insured’s death.	Assignee has all rights and control over the policy (including receiving benefits).
Legal Standing	Nomination simplifies claim settlement but doesn’t always confer ownership.	Assignment is a legal transfer of rights and ownership.
Revocability	Nomination can be changed by the policyholder at any time.	Assignment is usually irrevocable without the assignee’s consent.
Witness	Generally, no witness is required for nomination.	Assignment usually requires at least one witness.
Consideration	Nomination does not involve any exchange of value.	Assignment may or may not involve consideration (e.g., for a loan vs. a gift).
Impact on Policy	Does not alter the terms and conditions of the policy.	Transfers ownership and control of the policy to the assignee.
Claim Trigger	Death of the insured.	Maturity of the policy or death of the insured (payable to the assignee).

Understanding these distinctions is vital for policyholders to ensure their insurance policies serve their intended financial goals and protect their beneficiaries appropriately. It’s always advisable to consult with the insurance provider or a financial advisor for specific guidance related to your policy and circumstances.