Difference between Nomination and Assignment
What is the difference between Nomination and Assignment?
Difference between Nomination and Assignment : Assignment of a Life Insurance Policy means transfer of rights of the policy from the policyholder to someone else, however there is no transfer of rights under Nomination. Nomination is a process whereby a person is selected as a nominee who will receive the policy money only if the life insured dies within the policy tenure and not otherwise. Hence a nominee does not have any rights on the policy as long as the Life Insured is alive. However, an assignee is the owner of the policy as soon as the policy has been assigned. It is a legal process of transfer of rights. Once the policy has been assigned to someone, Nomination automatically stands cancelled.
Nomination can be made only by the insured himself. If the policyholder and the life insured is one and the same person, only then a nominee can be selected. If they are different entities, then no question of Nomination arises. This is because, if the life insured dies within the policy tenure, then the policy money would be paid to the policyholder himself. Hence there is no requirement of any nomination. Assignment can be done irrespective of the fact that whether life insured and policyholder are one and the same person. If the assignee is dead in case of Assignment, the claim can be paid to the assignee’s heirs. An assignee can assign the policy further to another person. The assignee can also take a loan under the policy. In fact, the assignee has the rights to select fresh Nomination.
Let us understand with an example:
Ravi has a Life Insurance Policy in which he made his wife Sheetal the nominee. Thus, if within 25 years of the policy tenure, if Ravi dies, then the policy money would be given to Sheetal by the Life Insurance Company. Sheetal has no other role to play and has no right on the policy as long as Ravi is alive.
Now, Ravi decided to give away his Life Insurance Policy to his friend Syuraj from whom he had once taken a loan of some amount and had been unable to repay. So, he thought of repaying it through the policy money.
Thus Ravi assigns the policy to Suraj. Hence all policy rights are transferred to Suraj and Suraj becomes the new policyholder. In this case, Ravi has no more rights on the policy money. Nomination automatically stands cancelled. Hence there is no role for Sheetal anymore once the policy has been assigned to Suraj. Suraj may do a fresh Nomination for the policy.
An Assignment changes the title to the policy but a Nomination does not change the title to the policy. The assignee immediately becomes the policyholder with complete rights of the policy whereas a nominee does not have any ownership of the policy till the life insured dies. A Nomination can be cancelled at any time by the life insured but as Assignment once done cannot be cancelled.
An Absolute Assignment holds good even after maturity but a Nomination holds good only till maturity. In an Assignment, property is transferred and it can be made on a separate paper. However, in a Nomination no transfer of property happens and hence there is no requirement of a separate paper. An Assignment is effective as soon as it is made but a Nomination is effective when it is registered by the insurer. A Nomination has to be notified to the insurer to become effective but an Assignment is effective as soon as it happens. A policy which has been assigned will revert to the assignor when the conditions specified in a Conditional Assignment happen. A policy which has been Absolutely Assigned will revert to the assignor only when the assignee reassigns the policy. However, as far as Nomination is concerned, the rights always remain with the life insured as long as he is alive. The Nominee has some role to play only after his death.
The Nomination becomes invalid when the policy is assigned. Also on maturity of the policy, the Nomination is automatically ineffective. However, Assignment holds good even after maturity of the policy, unlike Nomination.
The purpose of Nomination is to make claim settlements easier. It can be in favour of more than one person. In the case of many nominees, the claim will be paid to them jointly. A Nomination can be made even before the policy commences along with the proposal form submission. Assignment also can be done at the inception of the policy or anytime later.