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In India, insurance policies are one of the best ways to ensure our loved ones stay protected. To help customers get a suitable plan, insurance companies have launched different variants of insurance plans. These variants help the customers get a suitable plan for themselves. For instance, opting for a comprehensive plan will help you protect your loved ones and build wealth simultaneously.
While opting for different insurance plans can help you in the long run, it is important to know the intricacies of your insurance coverage entirely before purchasing the plan. In life insurance policies, Assignment and Nominations are two crucial words that are used quite commonly. Learning about these terms will help the policyholder squeeze out all the benefits available under the life insurance plan without making a dent in their pocket.
It is important to know the difference between the two before going ahead with the purchase of an insurance policy. However, to understand the differences better, let’s look at them individually.
What is a Nomination?
The nomination is the right provided to a policyholder, which authorizes them to appoint an individual to get the benefits if they pass away. The individual selected by the policyholder to get the benefit in a life insurance policy is called the nominee.
The nomination is regulated under Section 39 of the Insurance Act, 1938. The nomination in your insurance policy will ensure your loved ones get financial coverage if something unfortunate happens to you. Different types of nominees include:
- Beneficial nominee: Immediate family members that you have selected will be listed as the beneficial nominee and will get the financial benefits through the insurance plan.
- Minor nominee: You can also list your children as nominees. If they’re under the age of 18, they will be minor nominees, and you will also have to select a custodian.
- Non-family nominee: These nominees can be distant relatives or even friends as the life insurance plan’s beneficiaries.
- Changing nominees: You can change your nominees as per your requirement. Many insurers offer this service online. For instance, if you’ve opted for the Tata AIA life insurance plan, you can visit their official website to change the nominee on your policy. It can be done in a matter of minutes.
What is an Assignment?
Assignment of an insurance policy transfers the policy ownership, rights and title from one policyholder to a different individual or institution. The individual involved in assigning or transferring the policy is called the assignor. The person or institution to which it is assigned is called the assignee.
The assignment of an insurance plan is regulated under Section 38 of the Insurance Act, 1938. There are two types of assignment- absolute assignment and conditional assignment. In an absolute assignment, the entire policy is transferred to the assignee. In a conditional assignment, the assignee’s rights transfer happens if certain terms and conditions are met.
Difference between nomination and assignment in life insurance
There are several differences between nomination and assignment in life insurance. Listed below are the differences between them:
- Source: A nomination is made by mentioning the names of the nominees. Then, an assignment is made through the endorsement of the contract policy.
- Ownership of insurance plan: In the nomination, the policy owner does not change. It will continue to be under the policyholder’s name. The assignment involves transferring the ownership from the assignor to an assignee.
- Objective: Nomination helps the nominee listed in the insurance policy claim the benefits if the policyholder passes away. In the assignment, the policyholder transfers their policy ownership to a different individual or entity.
- Consideration: Nomination in insurance policies does not support consideration. An assignment may or may not support the consideration.
- Witness: In the nomination, a witness is not required. However, in an assignment, without a witness, the assignment of the insurance plan may be considered invalid.
- Suing rights: The nominee in an insurance plan cannot sue the policyholder. However, the assignee has the right to sue the assignor of the insurance plan.
- Policy amount: The nominee is entitled to avail of the claim benefit if the policyholder passes away. An assignee is entitled to get the policy amount.
Conclusion
Thus, nomination and assignment in insurance policies were designed for different reasons. The nomination of an insurance policy will protect you and the individuals you have named as nominees in your life insurance policy. On the other hand, an assignment will help protect the assignee from financial benefits through an insurance plan. Therefore, if you’re planning to purchase an insurance plan, it would be better to learn about the importance of both concepts.
