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Assignment and Nomination under Insurance Policies

Nomination and assignment are the two such terms which a policyholder must be aware of
to effectively manage the benefits accruing under a life insurance policy. Assignment refers
to the transfer of certain or all (depending on the agreement) rights to another party. The
party which transfers its rights is called an assignor, and the party to whom such rights are
transferred is called an assignee. Assignment only takes place after the original contract has
been made. As a general rule, assignment of rights and benefits under a contract may be
done freely, but assignment of liabilities and obligations may not be done without consent
of the original contracting party. The liability on a contract cannot be transferred so as to
discharge the person or estate of the original contractor unless the creditor agrees to accept
the liability of another person instead of the first.
Effect of Assignment
Immediately on execution of an assignment of an insurance policy, the assignor forgoes all
his rights, title and interest in the policy to the assignee. The premium or loan interest
notices etc. in such cases will be sent to the assignee. However, the existence of obligations
must not be assumed, when it comes to assignment. It must be accompanied with evidence
of the same. The party asserting such a personal obligation must prove the existence of an
express assumption by clear and unequivocal proof.
The Indian Law adopts the division of property into movable and immovable property. The
policy of life insurance is a movable property but it is an actionable claim. Life Insurance is
an actionable claim.
The creation of assignment of life insurance policies is provided for, under Section 38 of the
Insurance Act, 1938.
Endorsement has to be made on the policy or on a separate document, signed by
assignor (or agent authorized by him), attested by at least one witness specifying the
fact of the assignment. The assignment is complete and effectual with the execution
of such document. However it will not be operative against the insurer (no assignee
has the right to sue for any policy amount from the insurer) unless the abovementioned endorsement or separate policy has been delivered to the insurer.
When the insurer receives the endorsement or notice, the fact of assignment shall be
recorded with all details (date of receipt of notice also used to prioritise
simultaneous claims, name of assignee etc). Upon request, and for a fee of amount
not exceeding Re. 1, the insurer shall grant a written acknowledgment of the receipt
of such assignment, thereby conclusively proving the fact of his receipt of the notice
or endorsement. Now, the insurer shall recognize only the assignee as the legally
valid party entitled to the insurance policy.
Notice of Assignment:
Section 38(2) of the Insurance Act, 1938 says that the transfer or assignment shall be
complete and effectual upon the execution of such endorsement, duly attested. However, it

would not be operative until a notice in writing of the transfer or the endorsement or its
certified copy is delivered to the insurer. This notice can be given to the branch of insurers
office mentioned as a principle place of business.
Section 38 (3): Subject to the terms and conditions of the transfer or assignment, the insurer
shall, from the date of the receipt of the notice referred to in sub-section (2), recognize the
transferee or assignee named in the notice as the only person entitled to benefit under the
policy. The assignee shall be subject to all the liabilities and equities to which the transferor
or assignor was subject at of date of the transfer or assignment and may institute any
proceedings in relation to the policy without obtaining the consent of the transferor or
assignor or making him a party to such proceedings. From the day on which notice is given
to the insurer, the assignee becomes the beneficiary of the policy even though the
assignment is not registered immediately. Where there are more than one instruments of
transfer the priority of claims shall be governed by the order in which the notices are
delivered.
Section 38 (4) Recognition of the assignment:
Once the notice is received, by virtue of Sub-section (4), the insurer is bound to record the
fact of transfer or assignment together with the date thereof and the name of the transferee
and the assignee and on request, grant a written acknowledgment of the receipt of such
notice which will be conclusive evidence that the insurer had received the notice.
Section 38 (5) says that the Statute itself mandates that the insurer recognize the transferee
or assignee named in the notice as the only person entitled to the benefit under the policy
and such person would be subject to all liabilities and equities. The latter part of this subsection makes it clear that once the notice is served and the company recognizes the transfer
or assignment, it is the transferee or assignee who can institute any proceedings without
obtaining the consent of the transferor or assignor or making him a party to the proceedings.
Section 38 (6) says that any rights and remedies of an assignee or transferee of a policy of
life insurance under an assignment or transfer effected prior to the commencement of this
act shall not be affected by the provisions of this section .
There are two types of assignments:
Absolute Assignment: Absolute assignment provides that all rights, title and interest which
the assignor has in the policy are transferred to the assignee without reversion to the former
or his/her estate in any event. The policy thus vests absolutely with the assignee. The latter
can deal with the policy in whatever manner he or she likes without the consent of the
assignor.
Conditional Assignment Conditional assignment provides that the policy shall revert back
to the life assured on his or her surviving the date of maturity or on death of the assignee.
Section 38 (7) says that notwithstanding any law or custom having the force of law to the
contrary, an assignment in favour of a person made with the condition that it shall be
inoperative or that the interest shall pass to some other person on the happening of a

specified event during the lifetime of the person whose life is insured, and an assignment in
favour of the survivor or survivors of a number of persons, shall be valid.
According to Muslim law, a declaration purporting to be a transfer of certain property by
way of hiba to the donee at a future time contingent on the happening of a certain event is
void; again, if the hiba is attached with a condition annexed, the gift is valid, but the
condition is void.
That being so, the question arises that whether an assignment of a policy of insurance by a
Muslim husband to his wife is a void or valid gift? For example, suppose a Muslim
husband, H, insures and assigns his policy to his wife, W, with the condition that if W
predeceases H, the assignment will be inoperative, and in that event, will revert to H.
This transaction can be looked at from different points of view. It may be considered as
creating a valid contractual obligation between the insurer and the assured; or it may be
regarded as a gift by a Muslim vitiated by a contingency, and therefore, invalid under
Muslim law. Or, it may further be argued that it is a gift with a condition attached, and
hence the condition is void and the gift is valid.
To set this controversy at rest, Section 38 of the Insurance Act, 1938, lays down that,
Notwithstanding any law or custom having the force of law to the contrary, an assignment
in favour of a person made with the condition that it shall be inoperative, or that the interest
shall pass to some other person, on the happening of a specified event during the lifetime of
the person whose life is insured, and an assignment in favour of the survivors of a number
of persons, shall be valid.
Thus, where a husband assigned policies of insurance to his wife by a valid endorsement on
the condition that: In the event of my said wife predeceasing me this assignment shall
become null and void, as if it had not been made. This assignment was held to be perfectly
valid. (Sadiq Ali v. Zahida Begum, (1939) I.L.R. 61 All. 957).
Revocation of Assignment: Assignment, once validly executed, can neither be revoked nor
cancelled at the option of the assignor. To do so, the insurance policy will have to be
reassigned to the original assignor (the insured).

Nomination
Nomination is an act by which the policyholders authorises another person to receive the
policy money. The person so authorised is called a nominee. Nomination is a right given
to the life insurance policyholder to appoint a person or persons to receive the benefit under
the policy in case it becomes a death claim. Assume if a person who is insured dies, the
nominee is entitled to receive the policy proceeds subject to certain conditions.
Nomination in simple terms is naming a person who will receive the benefit on ones behalf.
In case of a life insurance policy, nomination plays a key role but only in case of a death
claim. It is on the death of the insured, that his sum assured will be given to someone he has
chosen while applying for the policy. In case of a life insurance policy, nomination can be
done either at the time of initial application or even during the policy period. The person
whose name appears as the nominee will receive the death benefit of the policy. Multiple

persons can also be named as nominees but in such cases each person is entitled to a certain
percentage share like 25% or 50%. The total of all such sharing should equal 100% which is
the death benefit. In case of multiple nominees the death benefit will be distributed to all the
nominees in the ratio as decided earlier.
A life insured can even change the nominee anytime during the policy period. For example,
if Mr. A, aged 28 and unmarried at the time take the policy on his name he can name his
mother or father or even both as his nominee. Assume that he gets married after a year and
is subsequently blessed with a child. Now he has his own family who are dependent on his
income.
So now he can change the nomination from his parents to his wife. Similarly, before the
maturity of the policy he can change the nomination from his wife to his child also. In other
words, nomination can be changed any time and any number of people can be named as
nominees.
While applying for life insurance, the individual should mention the nominee details in the
proposal form. The details of the nominee will basically include full name, age, address of
the nominee and nominees relationship with the life assured. According to Section 39 of
Insurance Act, 1938, one can have multiple persons as nominees and can also specify their
shares of the policy proceeds in percentage terms.
As per Section 39 (2) any such nomination in order to be effectual shall, unless it is
incorporated in the text of the policy itself, be made by an endorsement on the policy
communicated to the insurer and registered by him in the records relating to the policy and
any such nomination may at any time before the policy matures for payment be cancelled or
changed by an endorsement or a further endorsement or a will, as the case may be, [but
unless notice in writing of any such cancellation or change has been delivered to the insurer,
the insurer shall not be liable for any payment under the policy made bona fide by him to a
nominee mentioned in the text of the policy or registered in records of the insurer].
The difference between assignment and nomination are:
Nomination Vs. Assignment
Basis of Difference

Nomination

Assignment

What is Nomination
Or Assignment?

Nomination is the process of Assignment is the process of


appointment of a person to transferring the title of the
receive the death claim
insurance policy to another
person or
Institution.

When can the


nomination or
assignment be done?

Nomination can be done Assignment can be done only


either at the time of proposal after commencement of the
or after the commencement policy.
of the policy.

Who can make the


nomination or
assignment?

Nomination can be made Assignment can be done by


only by the life assured on owner of the policy either by the
the policy of his own life.
life assured if he is the
policyholder or the assignee

Consideration

Nomination is made without


consideration.
It is applicable only where
the Insurance Act, 1938 is
applicable.

Assignment of a life policy may


be with or without consideration.
It is applicable all over the
world, according to the law of
the respective country relating to
transfer of property.

Does the policyholder


retain control over the
policy?

The policyholder retains title


and control over the policy
and the nominee has no right
to sue under the policy

The policyholder loses the right,


title and interest under the policy
until a re-assignment is executed
and the assignee has a right to
sue under the policy.

Is a witness required?

Witness is not required.

Witness is mandatory.

Do they get any rights?

Nominee has no rights over Assignee gets full rights over the
the policy.
policy, and can even sue under
the policy.

Can it be revoked?

Nomination can be revoked The assignment once done


or cancelled at any time cannot be cancelled, but can be
during the policy term.
reassigned.

What happens in case


of death of the nominee
or assignee after the
death of the life
assured and before the
payment of the death
claim

In case the nominee dies


before the settlement of
death claim, the death claim
will be payable to the legal
heirs of the life assured.

Can creditors attach


the policy?

Creditors can attach the Creditors cannot attach the


insurance policy which has a policy unless the assignment is
nomination in it.
shown to have been made to
defraud the creditors.

Where is it applicable?

In case the assignee dies before


the settlement, the policy money
is payable to the legal heirs of
the assignee and not the lifeassured who is the assignor.

It is suggested to go through class notes also.