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  Assignment of insurance contract is the transfer made by the holder of a life insurance policy (the assignor) of the benefits or proceeds of the policy to a lender (the assignee), as collateral for a loan. In the event of the death of the assignor, the assignee is paid first and the balance (if any) is paid to the policy’s beneficiary.
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The contract of insurance is a personal contract, and the privity of contract rules apply to contracts of insurance, the alienation of the subject-matter insured also alienates the benefits of the policy from both the assignor and the assignee. Other types of insurance policies may not be used for this purpose.

The Assignment Of Insurance Policies

If the assignor wishes to transfer the benefits to the assignee, it must be with the consent of the insurer since the exercise is tantamount to a substitution of another person for the insured. Although the insured person, as a party to the insurance contract, has a right to transfer his/her rights under the contract, such transfer can only be done with the consent of the insurer, who is the other party to the contract. In simple terms, the interest of the insured in the insurance contract, being of monetary value, is a proprietary right that can be transferred to third parties, but with notice to the insurer. Where the subject matter of the insurance, such as a house or car, is assigned, the insurer is no longer liable to indemnify either the assignor (the insured) or the assignee, since the nature of the insurance contract is modified to the extent of changing the obligation of the parties. The insured takes out an insurance policy based on his/her interest in the subject matter of the insurance; where such interest is assigned, the insurer can no longer indemnify or compensate the insured in the event of a loss.

Assignment Of Life Policies Under The Insurance Act

Section 60 of the Insurance Act vests in anyone to whom a contract of life insurance has been assigned a right to sue in his own name. However, no such right shall accrue to the assignee, unless a written notice of the date and purport of the assignment is given to the insurer liable under the policy at the insurer’s principal business address. The importance of giving prompt notice cannot be overemphasized as the priority of successive assignments is determined by the date on which notice is received. An assignment of a policy of life insurance may be made by endorsement on the policy or by a separate instrument.
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The insurer is expected to deliver an acknowledgement of receipt of notice in writing to the party giving the notice, or his/her representative. However, the person seeking such acknowledgement must request it in writing. Any such written acknowledgement is considered to be conclusive evidence that the insurer duly received the notice.

Assignment Of Insurance Policy Under The Marine Insurance Act

The mere fact that goods insured under a contract of marine insurance are assigned or transferred to someone else does not automatically transfer the benefit of the insurance to the assignee unless there is an express or implied agreement between the assignor and the assignee for the assignment of the policy alongside the subject matter of insurance. This is in line with the general rule that assignment of interest in the subject matter of insurance does not translate to a transfer of an interest in the insurance policy. There must be a separate transfer, by express or implied agreement, of the interest in the policy. An insured who has lost his/her interest in the subject matter of the contract cannot assign the insurance policy upon it, and any purported assignment to the transfer of interest shall be inoperative. This just means that a person cannot give what they no longer have. If a person loses the interest that they have in a policy, then there is no interest to transfer.

How To Assign Your Insurance Policy To Another Person

  • Assignment form: The policyholder has to send the assignment form or application to the insurance company providing details of the policy that has to be assigned and those of the assignees. These include the names, address, contact information, signature of the assignee, his relationship with the policyholder and the reason for the assignment
  • Documents: Along with the form, the policyholder should send the original policy and know your client (KYC) documents of the assignee. It should be signed by at least one witness whose name and details should be provided in the form.
  • Processing: Once the documents are submitted to the insurance company, it will take the insurance company 10-15 working days to process.
  • Endorsements: The assignments can be endorsed on the policy documents or notarized assignments deeds confirming that they can be executed. The assignment can be revoked at a later date by the policyholder. In such a case a no-objection certificate has to be submitted by the assignee.

Conclusion

The legal standing of assignments in the field of insurance is not a straightforward question to answer. It depends on what is being assigned and how assignments are conducted in the various branches of insurance law. It is pertinent to note that an assignment in a policy takes precedence over the nomination. A nominee will receive the benefit of an insurance policy only on the death of the insured while an assignee will get the ones that are paid out; even during the lifetime of the insured. Featured Image Source: The Economic Times
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This article was first published on 5th April 2021

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