A life insurance policy can
be assigned
as a collateral to raise funds..!
By Mr.
Kamalji Sahay, Star Union Dai-Ichi Life Insurance
Except for
term insurance policy where the value of the sum assured remains constant
throughout the term, other life insurance policies keep acquiring higher
intrinsic value with the passage of time due to reversionary bonus additions
every year or / due to guaranteed additions at fixed intervals.
Except for term insurance policy where the value
of the sum assured remains constant throughout the term, other life insurance
policies keep acquiring higher intrinsic value with the passage of time due to
reversionary bonus additions every year or due to guaranteed additions at fixed
intervals.
A Life insurance policy provides financial
security to one’s dependents if the bread earner of the family dies during his
earning life. It is ideally purchased in the early stage of life and for fairly
long duration.
Some conscientious people prefer the policy term
to coincide with retirement or the age when he would have finished all his
responsibilities towards dependent family members.
In such a scenario, it is not unusual to buy more
than one life insurance policy during the initial five to 10 years with varying
features of life cover and maturity benefits to suit the requirements at
different life stages.
Except for term insurance policy where the value
of the sum assured remains constant throughout the term, other life insurance
policies keep acquiring higher intrinsic value with the passage of time due to
reversionary bonus additions every year or due to guaranteed additions at fixed
intervals.
1. Life insurance – a valuable asset
At a given point of time, even the unit-linked
insurance policies may be worth much more than the sum assured with growth in
NAV. Thus a life insurance policy becomes a valuable asset in the hands of the
policyholder.
He may use this asset in several ways for
fulfilling other financial needs. So, it’s wrong to assume that the money paid
for a life insurance policy remains locked till one is old and he is unable to
enjoy his savings when he needs it most.
Life insurance policy is a financial asset and
can be assigned to an entity or individual for valuable consideration. Section
38 of the Insurance Act, 1938 as amended in 2015 provides for this. An
assignment can be absolute or even conditional.
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| Mr. Kamalji Sahay, Star Union Dai-Ichi Life Insurance |
In Section 38 of the Insurance Act, 1938 as amended
in 2015 provides for this. An assignment can be absolute or even conditional.
In case of assignment, the rights, interest and title of the policyholder or
the assignor vests in the assignee.
The assignee in whose favour assignment is
executed becomes full owner of the policy even though the original policyholder
remains the life assured. In case of maturity or death claim, the assignee will
be entitled to receive the claim amount. If a policyholder wants that the
proceeds of a policy must go fully to a particular family member, he can assign
the policy in his favour to fulfil his wish. It is also important to note that
whenever assignment is executed it cancels nomination made under the policy.
2. Assignment is irreversible
Assignment is irreversible and the policyholder
can own it again only through reassignment in his favour by the first assignee.
This happens when a policyholder raises loan from any financial institution and
assigns the policy as a collateral security.
Once the loan and interest are fully repaid, the
bank reassigns the policy in favour of the policyholder. In all such cases the
policyholder needs to make fresh nomination under the policy. The original
nomination does not get automatically restored.
Assignment is executed on the body of the policy
bond and is witnessed by at least one person. If executed on separate paper it
has to be on valid stamp paper and must be attached to the policy bond with
necessary endorsement. For an assignment to be recognised, it has to be brought
to the notice of the insurer through a written notice which must be noted and
acknowledged by the insurer.
It is generally found that on repayment of
personal loan or housing loan the lender just returns the bond to the borrower
and overlooks the necessity of executing reassignment.
Whenever claim arises under such policies, the
policyholder or the claimant has to face hassles to set the record right and
receive the benefit. Similarly, not filing fresh nomination causes tremendous
hardship to the successors of the deceased policyholder. A well-informed
policyholder can make use of assignment in variety of ways.
About the writer
The writer Mr. Kamalji Sahay is former MD & CEO, Star Union
Dai-Ichi Life Insurance.
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