process of absolute assignment

Understanding Life Insurance Assignments: Your Complete Guide

A life insurance assignment allows you to transfer the rights of your policy, either temporarily or permanently.

Learn how collateral and absolute assignments can be used for loan collateral, estate planning, and other financial purposes.

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What is a collateral assignment.

Collateral assignments are used to secure a lender’s financial interest in your policy in exchange for lending you money.

If you die, the collateral assignment allows the lender to collect your policy’s death benefit up to the amount of the outstanding loan balance.

How Do Collateral Assignments Work?

A typical scenario involves taking out a business loan .

The lender may require a life insurance policy as collateral.

The type of life insurance policy used, whether a term, whole life, or universal life doesn’t matter.

The insurance policy will pay off the balance if you die while the loan is outstanding.

One of the most common uses for collateral assignments is with SBA loans , especially if you do not have other assets to post as collateral.

The collateral assignment applies to the entire policy, including any life insurance rider benefits that may be included.

The Collateral Assignment Process: A Step-by-Step Guide

The process is similar whether you are adding the assignment to an existing policy or buying new coverage.

There are two parties to a collateral assignment.

• Assignor – Is the owner of the life insurance policy
• Assignee – Is the lender

Life insurance companies have standardized forms used for this purpose.

• The owner completes the form and sends it to the lender for review and signature.
• Once completed by the lender, the form is sent to the insurance company.
• The insurance company records the assignment and confirms to the owner and lender that it is complete.

This may all seem confusing if you haven’t used an assignment before, but the reality is that most life insurers make it pretty easy to complete.

Releasing a Collateral Assignment

When you pay off your loan, you have the right to have the collateral assignment released.

It’s a simple process :

• The policy owner completes the form and sends it to the lender.
• The lender signs off on the release. Many companies require a notary as a witness. The lender may return the form to the owner or the insurance company.
• Once completed and returned to the insurance company, the release is recorded, and all parties are notified.

Companies typically complete this process in about a week, and it’s a good idea to confirm everything with the home office to avoid potential issues.

Your agent can help with this.

What Happens to a Collateral Assignment if You Die?

How do collateral assignments work when you die?

Your beneficiary will file a death claim with the life insurer at some point.

Collateral Assignment Tip # 1

If your beneficiary is a loved one, it’s a good idea to let them know that your policy has a collateral assignment so they are not surprised when they file the claim.

Here’s an example of how a death claim with a collateral assignment works:

• Policy Face Amount = $5,000,000
• Beneficiary = Your Spouse
• Original Bank Loan = $200,000
• Outstanding Loan Balance at Death = $100,000

What happens next?

• Your beneficiary will file the death claim with the life insurance company.
• The life insurance company will review the claim and see a collateral assignment attached to your policy.
• The life insurer contacts the lender for an updated payoff figure.
• Payoff amounts are sent directly to the lender.
• Your beneficiary receives the balance of the policy death benefit .

For the above example, your lender would receive $100,000, and your beneficiary would receive the remaining $4,900,000.

Collateral Assignment Tip # 2

NEVER name your lender directly as a beneficiary. If you do, the lender will receive the entire death benefit, and your intended beneficiary will have to go through the lender to receive their share.

Collateral Assignments and Health Issues

While lenders may want a life insurance policy as collateral, obtaining life insurance can sometimes be difficult if the insured has substantial health issues .

If you have an existing life insurance policy in effect, you can use that for the assignment.

Another option that exists in some states is contingent coverage.

Contingent coverage is a one-year policy that you can renew.

The policy will exclude death from the known health issue but provide coverage for new health issues that develop or from accidental deaths .

Many lenders accept this coverage when it’s the only option available. And we’ve also seen lenders waive the collateral assignment requirement at times.

What is an Absolute Assignment?

An absolute assignment is a change of ownership of the policy.

When you want to permanently relinquish your rights to the life insurance policy, an absolute assignment is used.

Examples where absolute assignments are used include:

Life Insurance Settlements

1035 exchange, gifting life insurance to charities, irrevocable life insurance trusts (ilit), business insurance planning.

With this transaction, you are selling your life insurance policy to a third party.

If it is a term policy, you would convert a term policy to permanent insurance before it is sold. In some cases, a company will buy the term policy.

Another example may involve admitting seniors to a nursing home, where the nursing home may take over the policy you have.

A 1035 exchange is a tax-free transfer of cash value from universal life or whole life policy to another similar policy.

You can use absolute assignments to transfer your policy to your favorite charity.

You use absolute assignments to transfer your policy to an ILIT permanently.

An example would be a survivorship policy you and your spouse own that you are transferring to the trust.

Many other potential issues may arise with transfers to an ILIT that are beyond the scope of this article.

If you purchase key person life insurance on an employee, absolute assignments transfer ownership to the employee.

Many times, this happens if the employee leaves the company or retires.

You may have a policy permanently assigned to a nursing home or assisted living facility to help with long-term care expenses.

How Do Absolute Assignments Work?

Life insurance companies have forms used for Absolute Assignments.

Absolute assignment forms require:

• Current owner name, address, and tax ID information.
• New owner name, address, and tax ID information.
• Relationship to the proposed insured.
• Spousal consent in some states and situations.

The completed forms are submitted to the insurance company, recorded, and confirmations are sent to all parties.

Frequently Asked Questions About Life Insurance Assignments

You may have questions about your life insurance assignment and how it works.

The following are general guidelines, as each situation is uniquely different.

Can the collateral assignment change the beneficiary?

No, the collateral assignment does not change the beneficiary.

The life insurance assignment gives the lender the right to receive proceeds equal to their outstanding loan balance.

Can a business be a beneficiary in a collateral assignment of life insurance?

A business can be the beneficiary of a life insurance policy that is collaterally assigned.

Final Words

Life insurance assignments are common for absolute and collateral assignments.

What is most important is that you understand what is involved with this process.

That’s where we’ll help you make the best decision for your life insurance.

There is never any pressure or obligation with our life insurance service.

Please take a few minutes to submit your quote request today. Thank you.

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Absolute Assignment of Life Insurance Policies

An absolute assignment transfers all ownership rights of a life insurance policy.

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More Articles

•   1. What Is the Assignment of Insurance Benefits?
•   2. What Is a Life Insurance Assignment?
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An absolute assignment of a life insurance policy involves transferring all rights and ownership decisions to another party. You could have one of several reasons for wanting to do this; for example, using the policy as collateral for a loan, or making a donation to your favorite charity at death. Making an absolute assignment is relatively simple as long as your life insurance policy allows it.

How Transfer of Ownership Works

Absolute assignment is akin to a transfer of ownership, in that you are giving all ownership rights to another party. Although you remain the insured under the contract, the new party can change the beneficiary (usually to itself), it can make decisions about investment options of a whole-life policy, and it can take any other action that does not jeopardize the policy's in-force status. You remain responsible for the premium payments, and you could be in breach of the assignment provisions if you don't pay them.

Collateral Loan Bank Assignment

Absolute assignment of life insurance is often done when a person applies for a loan. If the bank is concerned that the loan might not be repaid if you died, if might require a life policy with an absolute assignment to the bank. The bank names itself the beneficiary of the policy up to the amount of the loan balance. Any residual death benefit would go to your named beneficiary.

Financing a Charitable Gift

Another use of absolute assignment is to make a charitable gift. This approach is gaining in popularity.

Life insurance is often purchased to finance a charitable donation by the estate of a deceased individual. One drawback to this approach is that the entire gift goes through the estate and might incur probate delays and fees.

The use of an absolute assignment streamlines the process, as the charity can name itself the beneficiary of the policy. The charity can issue you a tax receipt for every premium, which you can deduct as a charitable contribution.

Absolute Assignment Legal Considerations

Insurance companies freely provide assignment forms that are straightforward and easy to fill out. Once an assignment is complete, a copy of the form should be filed with the insurance company.

The life insurance company may withhold part of its payout to any beneficiary -- including a newly designated one -- if a premium hasn't been fully paid, or because of other indebtedness. That might have legal ramifications for you and the assignee, in which the insurance company will take no part.

• Standard Life Insurance Co. of New York: Absolute Assignment Form
• Waypoint Partners: Assigning Your Life Insurance Policy
• Collateral Assignment Agreement

Philippe Lanctot started writing for business trade publications in 1990. He has contributed copy for the "Canadian Insurance Journal" and has been the co-author of text for life insurance company marketing guides. He holds a Bachelor of Science in mathematics from the University of Montreal with a minor in English.

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Understanding Absolute Assignment in Insurance: Key Benefits and Considerations

Absolute assignment is a crucial concept in the realm of insurance policies, offering significant control and benefits to the assignee. Understanding its intricacies can help policyholders and assignees make informed decisions, ensuring that their financial and insurance needs are met effectively. This article delves into what absolute assignment is, its benefits, and key considerations to keep in mind.

What is Absolute Assignment?

Absolute assignment refers to the transfer of all ownership rights of an insurance policy from the assignor (original policyholder) to the assignee (person to whom the policy is assigned). This transfer grants the assignee complete control over the policy and full rights to its benefits. Unlike other forms of assignment, absolute assignment is irrevocable and unconditional, meaning that the original policyholder relinquishes all claims to the policy once the assignment is made.

Key Characteristics of Absolute Assignment:

• Full Control and Benefits : The assignee gains complete authority over the policy, including the right to change beneficiaries, surrender the policy for its cash value, or even borrow against it.
• Irrevocable Transfer : Once the assignment is made, it cannot be undone by the original policyholder. This ensures the assignee’s full control and rights are protected.
• Unconditional : The transfer is not contingent on any conditions; it is an outright transfer of ownership.

Benefits of Absolute Assignment

Absolute assignment offers several advantages for both the assignor and assignee, particularly in financial planning and securing debts.

For the Assignor:

• Debt Security : When a policy is assigned to secure a debt, it assures the lender (assignee) that they have a guaranteed source of repayment. This can be particularly beneficial for large loans or mortgages.
• Simplified Estate Planning : Transferring a policy can simplify estate management by ensuring that the policy benefits go directly to the intended recipient without passing through probate.

For the Assignee:

• Full Policy Control : The assignee can make decisions regarding the policy, such as changing beneficiaries or taking out loans against the policy, providing flexibility and control over the financial asset.
• Guaranteed Benefits : The assignee receives all the policy benefits, including death benefits and cash surrender value, providing financial security and assurance.

Considerations and Risks

While absolute assignment provides clear benefits, it also comes with certain risks and considerations that both parties should be aware of.

• Loss of Rights : Once the policy is assigned, the original policyholder loses all rights and control over the policy, which can be a significant drawback if their financial situation changes.
• Tax Implications : Transferring ownership of an insurance policy can have tax consequences, and it’s advisable to consult a tax professional to understand the implications fully.
• Responsibility for Premiums : The assignee may become responsible for paying the policy premiums to keep it in force, which could be a financial burden.
• Legal Complexities : Ensuring that the assignment is legally binding and recognized by the insurance company requires careful documentation and, often, legal advice.

Practical Steps for Implementing Absolute Assignment

• Consultation : Before making an absolute assignment, both parties should consult with financial advisors or legal professionals to understand the full implications.
• Documentation : Proper documentation is crucial. The assignment should be in writing and clearly state that it is an absolute assignment. Both the assignor and assignee must sign the agreement.
• Notification : Notify the insurance company about the assignment. The insurer will typically require a copy of the assignment document and may have specific forms to complete.

Absolute assignment is a powerful tool in managing insurance policies and financial planning. By understanding its benefits and potential risks, both assignors and assignees can make informed decisions that enhance their financial security and control. Whether securing a debt or managing an estate, absolute assignment provides a clear path to transferring policy ownership and benefits, offering peace of mind and financial assurance.

By following the practical steps and considering the implications carefully, individuals can leverage absolute assignment to meet their unique financial goals effectively.

Absolute Assignment

What does absolute assignment mean.

Absolute assignment refers to a policyholder transferring his or her ownership of a policy to another party. That transfer means that all of the coverage within that policy will now go to the newly named party. The original owner of the policy does not have to state his or her reasons for doing so nor does he or she need to stipulate any conditions for the transfer.

Insuranceopedia Explains Absolute Assignment

There are a number of reasons why a policyholder transfers all of their rights to a policy to another person or entity. They might think of it as a gift to someone else. It could be the sole means of paying off a loan. Even if the insured has now given up their rights to all of the claims and privileges, they are still responsible for payments for the policy. The new owner might have been asked by the original owner to pay the insurer after the transfer is completed, but if the newly named party fails to do so, the negligence will not be blamed on that person but on the original policyholder.

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Managing general agent (mga), inland marine policy, multiple indemnity, policy reserve, position schedule bond, qualified pension plan, refund annuity, refund life income option, rental value insurance, related terms, transfer by endorsement, noninsurance transfer, risk transfer, insurable interest, non-insurable risk, direct billing, related articles, 5 types of crime insurance policies businesses should consider, choosing the right kind of mortgage, 10 things you need to know about health insurance in the united states, the future of insurtech: how technology is transforming the insurance industry, inside the details of auto transport insurance: an expert interview, expert insights: the ins and outs of moving insurance, related reading, trending articles.

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• Life Insurance Glossary
• Absolute Assignment

What is Absolute Assignment in Life Insurance?

<lingo>In life insurance, the term absolute assignment refers to the transfer of all interest, rights, and ownership of an asset — in this case, the life insurance policy. This decision is irrevocable, which means it cannot be changed once it is in place. It also applies both to the present and in the future. For those who are purchasing a life insurance policy, it is important to look for a clause like this in the details and to understand what it means to use absolute assignment. In short, all rights and ownership of the policy are being given to another person, specifically listed in the policy.</lingo>

Absolute Assignment Clearly and Briefly Explained

There are numerous reasons why you may wish to pursue an absolute assignment. For example, it may be used in the process of providing collateral for a loan to a lender. In addition to this, some may elect to use this when you wish to donate the proceeds from your life insurance policy to a charity or award them to a specific purpose after your death.

<twitter>In life insurance, the term absolute assignment refers to the transfer of all interest, rights, and ownership of an asset — in this case, the life insurance policy. </twitter>

One way to look at absolute assignment is that it allows you to transfer ownership — all ownership — to another party. When you make this transfer, you remain covered under the life insurance policy. However, the new owner of the policy has the right to make changes to it. For example, they can change the beneficiary of the policy. Most often, this will be done to change the beneficiary of the life insurance policy to the new owner’s name. In addition, the new owner now has the ability to make all decisions regarding the underlying assets within the investment. The only thing that the new owner cannot do is to eliminate the coverage of the plan.

When absolute assignment occurs, you continue to make payments on it. One common use of this is when you are taking out a loan and the bank is concerned about your age or health. They may require you to take out a life insurance policy and assign absolute assignment. This would help cover the value of the loan should you die while it is in place.

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Welcome Funds has compiled every term, phrase & definition related to life settlements. Have more questions? Call us toll-free at 877.227.4484 or complete our Quick Life Settlement Qualifier to determine your eligibility.

• The Life Settlement Option

WHAT IS ABSOLUTE ASSIGNMENT?

Absolute Assignment is a legal instrument that allows the owner of a life insurance policy or other valuable assets to transfer all rights and ownership of the asset to a designated assignee. This transfer of ownership is comprehensive and unrestricted, giving the assignee complete control and authority over the asset. Unlike conditional assignment, which may have specific conditions attached, absolute assignment represents an unqualified transfer of ownership..

Absolute assignment can be used not only in the context of life insurance but also for transferring ownership of other valuable assets such as real estate and securities. It involves a meticulous adherence to legal requirements and procedural details to ensure the validity and legality of the ownership transfer. Seeking guidance from legal and financial experts is essential to ensure a smooth and legally sound execution of the absolute assignment process.

Exploring Life Settlements

When considering selling a life insurance policy, individuals have the option to engage in a life settlement, wherein the policy is sold to institutional buyers in the secondary market. This process involves applying to various licensed buyers who compete to offer the highest bid for the policy. An experienced life settlement broker can facilitate this auction-style bid process, ensuring that policy owners receive the best possible offer for their policies.

Welcome Funds: Your Life Settlement Partner

Welcome Funds is a nationally licensed life settlement broker that specializes in representing policy owners in the secondary market for life insurance. They engage in an auction bidding process to secure the highest offer from institutional buyers, providing professional representation and expert counsel throughout the sale of the life insurance policy.

Explore Your Options with a Life Settlement Qualification Process

To explore the eligibility of a life insurance policy for a potential life settlement, individuals can embark on a cost-free and commitment-free journey by engaging in the Life Settlement Qualification Process. This process includes a complimentary personal consultation & appraisal, during which confidentiality is safeguarded. Interested individuals can complete a Quick Life Settlement Qualifier online or call a toll-free number to connect with a dedicated client care advocate.

Overall, the combination of absolute assignment and the life settlement process provides individuals with a means to transfer ownership of valuable assets and explore options for selling their life insurance policies in a competitive market.

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Complete our quick Life Settlement Qualifier or call us toll-free at 877.227.4484 to speak with a client care advocate.

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When you decide to sell a valuable personal asset, you usually want to obtain the highest purchase price for that property. It is sound business sense. However, how do you truly know when you have reached the point of accepting and securing the most desirable offer?

Understanding the Fair Market Value of a Life Insurance Policy

When a professional advisor identifies a life insurance policy that a client no longer needs or wishes to maintain, he should ask, as standard protocol, whether that policy may have value in the secondary market. If so, the client may be able to sell the policy in a life settlement transaction, enabling him to receive a higher cash payout than he otherwise would obtain by lapsing or surrendering the policy back to the insurance company.

The Power of a Life Settlement Auction

Professional advisors with clients who no longer need or wish to maintain a life insurance policy have options when exploring the secondary market.  Many advisors prudently rely on a licensed life settlement broker to assist them in the sale of the policy and with all aspects of the transaction.  However, there is still a large number of professionals persuaded to work directly with only one buyer, called a life settlement provider.

Rebuttals to the “Direct Buyer” Model for Life Settlements

Most professional advisors who explore the potential sale of an unwanted life insurance policy on behalf of their clients will rely on the assistance of a licensed life settlement broker. Life settlement brokers represent the policy owner in the transaction and have a duty to act in their best interests. Most notably, the broker’s and client’s goal is aligned: to sell the policy for the highest price possible.

Carrier Resistance To Life Settlements: Clients Need To Know They Can Sell Their Policies

Consumers who sell their life insurance policies in the life settlement market receive as much as seven times more money than they would have received by surrendering their policies back to the insurance companies.  Seven times!  However, an estimated 9 out of 10 policies are allowed to lapse before paying a claim, according to the Life Insurance...

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What Is an Absolute Assignment?

Absolute assignment is most often encountered in the insurance industry. It is the irrevocable transfer of all of your interests, rights and ownership regarding an insurance policy both in the present and in the future. One common use of an absolute assignment is during a life settlement on a life insurance policy where you sell your policy prior to your death.

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Parties to an Absolute Assignment

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There are several parties (people) involved in an absolute assignment of an insurance policy. It is important to understand the function of each party. The first party is the insured, the person who is covered under the insurance policy. If it is a life insurance policy this would be the person whose life is insured. The assignor is the person who currently owns the rights the policy is providing. The assignee is the person who will be receiving the rights.

Other Parties Involved

In addition to the people directly involved in the absolute assignment transaction, there are people who are tangentially involved. The first is the primary beneficiary. The primary beneficiary is the person who benefits if the policy pays off. In addition to the primary beneficiary there is often a secondary beneficiary who will receive the insurance proceeds if for some reason the primary beneficiary becomes ineligible. One of the primary rights that the assignee is looking to acquire is the right to choose the beneficiaries.

Why Assign Your Rights?

There are a variety of reasons why a person might want to assign his rights of ownership to an insurance policy. Business policies might be assigned if the business is sold. Life insurance policies might be assigned if a person is near death but needs the money to pay medical costs. Accident insurance policies might be assigned to cover the costs associated with the accident.

Why Absolute?

The term absolute means that once the rights are assigned you can't change your mind. Often when an life insurance policy is assigned the assignee might have to make several insurance payments before collecting on the policy. He certainly wouldn't agree to this if at some point in the future the original owner of the policy could change his mind and take the policy back. Therefore the policy transfer is absolute and can't be revoked.

Other Uses of Absolute Assignment

In addition to the insurance industry, absolute assignment is often used in the mortgage industry. Often in a commercial mortgage the lender will insist on an absolute assignment of rents clause in the mortgage contract. This means that if the lender has to foreclose on the property he not only gets the property but he also gets the rights to any rents the property is generating. This could be significant if the lender got the property but the former owner got to keep the rent.

What is Absolute Assignment in Insurance?

If you are unfamiliar with the concept of Absolute Assignment, the term simply refers to the process by which a policyholder transfers ownership of their insurance policy to another person. This means that all coverage is transferred to the new party without the original owner stating the reasons for doing so. Absolute Assignments are common, but they are often confused with a subordination of ownership. If you are confused about this process, here are some of the key definitions you need to know.

Transfer of ownership

An Absolute Assignment in insurance is a legal process that enables a policyholder to give up ownership of their policy to another party. In an Absolute Assignment, the original owner of a policy does not have to state any reason or conditions that led to his or her decision to assign the policy. Instead, they simply hand over the rights and responsibilities of the policy to the new owner. This transfer of ownership is not always easy to complete. But if done correctly, it can make a huge difference when you need to protect your assets or avoid tax liabilities.

Absolute Assignments are extremely common in the insurance industry, and they can have a variety of uses. They can be used to transfer ownership of a policy, such as when a life insurance policy is being gifted. Assuming this is the case, an absolute assignment will allow a policy holder to transfer ownership of his or her policy. An absolute assignment will transfer all rights and benefits, and any future ownership, as well. This type of transfer is frequently done during life settlements, which are sales of insurance policies before a person dies.

An Absolute Assignment is an irrevocable transfer of rights in an insurance policy. An absolute assignment does not require the permission of the insurer to transfer ownership of a policy. Once an Absolute Assignment is completed, the new owner of the policy will be known as the assignee. An Absolute Assignment is an irrevocable transfer of ownership, and the assignee will have complete control over the policy. For example, if the original owner were able to change his or her mind, the new assignee would not have agreed to a multiple-payment arrangement.

Transfer of rights

Absolute assignment in insurance is the transfer of rights, benefits, and ownership. An assignment is an irrevocable transfer of an insurance policy. In most cases, this occurs during a life settlement, or the sale of an insurance policy before death. In such a case, the assignee is entitled to choose the beneficiaries of the policy. Here is a good example of an absolute assignment in insurance. If X decides to gift his life insurance policy to Y, he is transferring all rights and benefits from the original policy owner to the new one.

An absolute assignment in insurance is a transfer of ownership without the need to obtain the consent of the insurer. The owner of the insurance policy is known as the policyowner and the insurer is known as the assignor. The assignee takes full control of the policy. The assignee can change the beneficiary of the policy without the consent of the original owner. The assignment is irrevocable. In most cases, absolute assignment in insurance is used in life settlements.

There are various forms of absolute assignments in insurance. Usually, an employer purchases an insurance policy as a perquisite for an employee and then assigns the policy to the employee. This transfer of rights occurs under the Absolute Assignment clause. The employer pays for the insurance policy for the duration of the employee’s employment, and the employee is given the right to use the insurance policy. An employer also adds this insurance policy to an employee’s Annual Income Package.

Transfer of interests

In the world of insurance, an absolute assignment means the transfer of ownership of a policy to another party. Absolute assignment occurs when the original owner of the policy transfers its ownership to the new named party. It doesn’t require any conditions or reasons for the assignment. In addition, an absolute assignment may be performed in the interest of a private entity or an individual. But, there are some things you should know before assigning your policy to another party.

In a typical assignment, a life insurance policy is transferred from an individual to a bank. The person who originally owned the policy remains the life assured. However, the bank will receive insurance money upon the death of the insured person. Absolute assignment transfers rights, without conditions to the Assignee. If an insurance policy is transferred by means of an absolute assignment, the Assignee will have full control of the policy and may change the beneficiary without the permission of the original policyholder.

The process of assigning an insurance policy is fairly simple. Simply fill out an assignment form and transfer all of the ownership interests and rights to the new owner. The new owner can change the beneficiary and underlying assets, but cannot eliminate coverage. This means that you must make sure your insurance policy is in absolute assignment form. A legal representative should review this document before signing. It will help you make the right decision. So, when you are purchasing a life insurance policy, make sure to look for an absolute assignment clause in your contract.

In conclusion, absolute assignment is an important part of insurance contracts. It allows the insured to transfer their rights and obligations under the contract to another party. This can be helpful in case of an accident or other emergency. It is important to understand the concept of absolute assignment before signing any insurance contract.

In conclusion, absolute assignment is an important concept in insurance. It allows for the transfer of rights and obligations under an insurance policy from one party to another. This can be helpful in cases where the original policyholder no longer wants or needs the policy, or when the policy has been damaged or lost.

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Absolute assignment, page actions.

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Absolute Assignment stands for a complete transfer of all the rights of the policy from the assignor to the assignee without any further applicable conditions.

• 1 Features of absolute assignmen
• 2 Parties involved
• 3 Reasons for setting up policies
• 4 Policy approval process
• 6 Advantages of Absolute assignment
• 7 Limitations of Absolute assignment
• 8 Other approaches related to Absolute assignment
• 9 Footnotes
• 10 References

Features of absolute assignmen

Certain basic features of an absolute assignment can be listed:

• First of all, it does not require any special reasons for the assignment to take place.
• Secondly, there are no conditions that must be fulfilled.
• Thirdly, it can be performed in favour of any person or an private entity.

Every reason for the assignment is proper. Furthermore, the assignor is not entitled to any rights to the policy after assignment. Any rights and benefits from the policy may be exercised only by the assignee. The term of absolute assignment usually belongs to the insurance industry . It means an irrevocable transfer of all the owned interests, rights and ownership related to an insurance policy both in the present and future. One of the most common uses of absolute assignment is during life settlement concerning life insurance policy when a person sells his or her policy before their death [1] .

Parties involved

There are a few parties involved in the absolute assignment of an insurance policy. Each function of each party should be well understood. The first party means the insured , the person who is protected by the insurance policy. If we talk about life insurance policy, this person would be the one whose life is insured. The assignor , on the other hand, is the person who at the moment owns the rights the policy is anticipating. The assignee, in turn, is the person who will benefit from the rights. Additionally to the people directly involved in the transaction of an absolute assignment, there are persons who are involved in an indirect manner. First of all, it is the primary beneficiary . The primary beneficiary means the person who benefits from policy's paying off . Additionally to the primary beneficiary there can be also a secondary beneficiary who will benefit from the insurance if for any reason the primary beneficiary is not anymore entitled to the benefits. One of the primary rights to which the assignee is entitled is the right to choose beneficiaries [2] .

Reasons for setting up policies

There is a number of reasons why a person may wish to assign their ownership rights to an insurance policy.

• Business policies are sometimes assigned when the business is simply sold.
• Life insurance policies may be assigned when a person is close death but needs the fund to cover medical costs.
• Accident insurance policies may be assigned to pay up the costs related to the accident.

The term absolute is also very interesting. It means that once the rights are assigned, the decision concerning them cannot be changed. In other words, absolute Assignment means a full Transfer of Rights. The person transferring the rights is referred to as the Assignor, while the person to whom the rights are transferred is referred to as the Assignee. Thus, we can say that Absolute Assignment can be defined as a complete transfer of all and sole rights arising out of the policy from the Assignor to the benefit of the Assignee without any further applicable terms or conditions [3] .

Policy approval process

The assignment process is done when a genuine Policy Document is endorsed or a new Policy Document is issued to the benefit the Assignee. We can discuss it on a simple example:

• Your grandmother owns a life insurance policy of the value of PLN 5 000. She wishes to donate it, as a gift to you.

In that case, she would perform Absolute Assignment of the policy to your benefit, so that the death or maturity proceeds are paid directly to you. Other members of your and your grandmother's family or nominees do not have any right on the policy money . After the assignment is completed, you become the sole and absolute owner of the policy. Thus this kind of Assignment without any further clauses, which are attached to it is defined as the Absolute Assignment [4] .

Examples of Absolute Assignment in real life are numerous, especially in the event of an Insurance Policy, which is taken by an employer as a perquisite for an employee . Once the policy is obtained, it is transferred to the name of the employee on the basis of an Absolute Assignment clause . This way the employee becomes the policy owner, however, it is the employer who pays for it until the end. Hence, instead of receiving cash, the employee is being presented with an insurance policy in his or her name, which is added to their Annual Income Package.

Advantages of Absolute assignment

Absolute assignment of a life insurance policy offers several advantages for both assignors and assignees. These advantages include:

• The assignor is relieved from all responsibilities of the policy, including the payment of premiums.
• The assignee can now benefit from the policy, such as from its cash value, death benefits, dividend payments, or any other benefits provided by the policy.
• The assignee can also use the policy as collateral for loan.
• The assignee can also make any changes to the policy, such as changing the beneficiary, without the approval of the assignor.
• The assignee can also enjoy tax benefits associated with the policy.

Limitations of Absolute assignment

An absolute assignment is the complete transfer of all rights of a policy from the assignor to the assignee. However, there are some limitations to this transfer of rights:

• In some cases, a policy may have certain clauses which restrict the rights of the assignee, such as a clause which states that the policy must remain in the assignor's name.
• Absolute assignment may not be possible in certain states or provinces, as the laws governing insurance policies may vary.
• In some cases, the policy may be subject to certain conditions, such as the payment of premiums or the payment of a surrender value. These conditions must be met before the policy can be assigned.
• The assignee may not be able to make any changes to the policy, such as changing the beneficiary or the amount of coverage.
• The assignor may be liable for any unpaid premiums or other obligations associated with the policy, even after the policy has been assigned.
• The assignee may not be able to receive any benefits from the policy until the assignor has been fully compensated for any obligations associated with the policy.

Other approaches related to Absolute assignment

The following are other approaches related to absolute assignment:

• Reassignment : This approach involves the transfer of ownership rights from the assignor to the assignee with the agreement of the insurer.
• Subrogation : This approach involves the transfer of ownership rights from the assignee to the assignor without the agreement of the insurer.
• Collateral Assignment : This approach involves the transfer of ownership rights from the assignor to the assignee but with the agreement of the insurer.
• Endorsement Assignment : This approach involves the transfer of ownership rights from the assignor to the assignee with the agreement of the insurer but with certain restrictions.

All of these approaches involve the transfer of ownership rights from the assignor to the assignee, but with different conditions and agreements with the insurer. In summary, absolute assignment is a complete transfer of all rights of the policy from the assignor to the assignee without any further applicable conditions.

• ↑ Jerry II, R.H., Richmond, D.S. (2012). Understanding Insurance Law .
• ↑ Jerry II, R.H., Richmond, D.S. (2012). Understanding Insurance Law
• ↑ Malloy R.P. (2015)., Emanuel Law Outlines for Real Estate]
• ↑ Sandeen S.K. (2007)., Intellectual Property Deskbook for the Business Lawyer: A Transactions-based Guide to Intellectual Property Law

• Jerry II, R.H., Richmond, D.S. (2012). Understanding Insurance Law . LexisNexis.
• Malloy R.P. (2015)., Emanuel Law Outlines for Real Estate , Wolters Kluwer Law & Business
• Sandeen S.K. (2007)., Intellectual Property Deskbook for the Business Lawyer: A Transactions-based Guide to Intellectual Property Law , American Bar Association

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What is Assignment and Nomination in Life Insurance?

‘Assignment’ and ‘Nomination’ are two most common terms used in a life insurance policy document. Let us understand the importance of these two terms in-detail.

By Future Generali. Updated On Oct 06, 2022

Your life insurance policy is a contract between you (insured) and the insurance company (insurer). The contract is filled with jargon. To the extent possible, we must understand all the terms mentioned in the policy bond (certificate). ‘Assignment’ and ‘Nomination’ are two most common terms used in the insurance world.

For instance, in the event that you plan to apply for a home loan, your home loan provider will surely use these terms. Hence, it is best to be sure and understand exactly what the terms mean before you make a decision to buy the policy.

What is assignment in life insurance?

A life insurance policy can be assigned when rights of one person are transferred to another. The rights to your insurance policy can be transferred to someone else for various reasons. The process is known as assignment.

An “assignor” (policyholder) is the person who assigns the insurance policy. An “assignee” is the person to whom the policy rights have been transferred, i.e. the person to whom the policy has been assigned.

In the event rights are transferred from an Assignor to an Assignee, the rights of the policyholder are canceled, and the Assignee becomes the owner of the insurance policy.

People often assign their life insurance policies to banks. A bank becomes the policy owner in this case, while the original policyholder continues to be the life assured whose death may be claimed by either the bank or the policy owner.

Types of Assignment

There are two ways to assign an insurance policy. They are as follows:

1. Absolute Assignment

During this process, the rights of the assignor (policyholder) will be completely transferred to the assignee (person to whom the policy rights have been transferred). It is not subject to any conditions.

As an example, Mr. Rajiv Tripathi owns a Rs 1 Crore life insurance policy. Mr. Tripathi wants to gift his wife this policy. Specifically, he wants to make “absolute assignment” of the policy in his wife's name, so that the death benefit (or maturity proceeds) can be paid directly to her. After the absolute assignment has been made, Mrs. Tripathi will own this policy, and she will be able to transfer it to someone else again.

2. Conditional Assignment

As part of this type of assignment, certain conditions must be met before the transfer of rights occurs from the Assignor to the Assignee. The Policy will only be transferred to the Assignee if all conditions are met.

For instance, a term insurance policy of Rs 50 Lakh is owned by Mr. Dinesh Pujari. Mr. Pujari is applying for a home loan of Rs 50 Lakh. For the loan, the banker asked him to assign the term policy in their name. To acquire a home loan, Mr. Pujari can assign the insurance policy to the home loan company. In the event of Mr. Pujari’s death (during the loan tenure), the bank can collect the death benefit and get their money back from the insurance company.

Mr. Pujari can get back his term insurance policy if he repays the entire amount of his home loan. As soon as the loan is repaid, the policy will be transferred to Mr. Pujari.

In the event that the insurer receives a death benefit that exceeds the outstanding loan balance, the bank will be paid from the difference between the death benefit and the loan and the balance will be paid directly to the nominee. In the above example, the remaining amount (if any) will be paid to Mr. Pujari’s beneficiaries (legal heirs/nominee).

Key Points to know Note About Assignment

In regards to the assignment, the following points should be noted:

• A policy assignment transfers/changes only the ownership, not the risk associated with it. The person assured thus becomes the insured.
• The assignment may lead to cancellation of the nomination in the policy only when it is done in favour of the insurance company due to a policy loan.
• Assignment for all insurance plans except for the pension plan and the Married Women's Property Act (MWP), can be done.
• A policy contract endorsement is required to effect the assignment.

What is nomination in life insurance?

Upon the death of the life assured, the nominee/ beneficiary (generally a close relative) receives the benefits. Policyholders appoint nominees to receive benefits. Under the Insurance Act, 1938, Section 39 governs the nomination process.

Types of Nominees

In a life insurance policy, the policyholder names someone who will receive the benefits in the event of the life assured's death. Here are a few types of nominees:

1. Beneficial Nominees

In accordance with the law, the beneficiary of the claimed benefits will be any immediate family member nominated by the policyholder (like a spouse, children, or parents). Beneficiary nominees are limited to immediate family members of the beneficiary.

2. Minor Nominees

It is common for individuals to name their children as beneficiaries of their life insurance policies. Minor nominees (under the age of 18) are not allowed to handle claim amounts. Hence, the policyholder needs to designate a custodian or appointee. Payments are made to the appointee until the minor reaches the age of 18.

3. Non-family Nominees

Nominees can include distant relatives or even friends as beneficiaries of a life insurance policy.

4. Changing Nominees

It is okay for policyholders to change their nominees as often as they wish, but the latest nominee should take priority over all previous ones.

Key Points to Note About Nomination

In regards to the nomination, the following points should be noted:

• In order to nominate, the policyholder and life assured must be the same.
• In the case of a different policyholder and life assured, the claim benefits will be paid to the policyholder.
• Nominations cannot be changed or modified.
• The policy can have more than one nominee.
• As part of successive nominations, if the life assured appoints person “A” as the first person to receive benefits. Now, in the event of the life assured’s death after person “A” dies, the claim benefits will be given to person “B”. The benefits will be available to Nominee “C” if Nominee “A” and Nominee “B” have passed away.

What is the difference between nomination and assignment?

Let's talk about the differences between assignment and nomination.

Nomination and Assignment serve different purposes. The nomination protects the interests of the insured as well as an insurer in offering claim benefits under the life insurance policy. On the other hand, assignment protects the interests of an assignee in availing the monetary benefits under the policy. The policyholder should be aware of both of them before buying life insurance.

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In the life insurance industry, assignment refers to the transfer of ownership of a life insurance policy from the policyholder to another party, such as a creditor, a family member, or a business partner. The process of assignment allows policyholders to assign their rights and benefits under the policy to a third party, typically in exchange for some form of consideration.

Types of Assignment

There are two main types of assignment in the life insurance industry: absolute assignment and collateral assignment.

Absolute assignment is the complete transfer of ownership of a life insurance policy to another party. The assignee becomes the new owner of the policy and assumes all the rights and obligations associated with the policy. Absolute assignment is typically used in cases where the policyholder wants to permanently transfer ownership of the policy, such as when gifting the policy to a family member or selling the policy to a third party.

Collateral assignment, on the other hand, is a partial transfer of ownership of a life insurance policy. In a collateral assignment, the policyholder assigns a portion of the policy’s benefits to a third party, such as a creditor, as collateral for a loan or debt. The assignee does not become the owner of the policy, but rather has a right to the policy’s benefits only to the extent necessary to satisfy the debt.

Process of Assignment

To assign a life insurance policy, the policyholder must first obtain the necessary forms from the insurance company. The forms typically require the policyholder to provide the name of the assignee, the type of assignment (absolute or collateral), and the percentage of the policy’s benefits to be assigned.

Once the forms are completed and signed by both the policyholder and the assignee, they must be submitted to the insurance company for processing. The insurance company will then update its records to reflect the new ownership of the policy, and the assignee will receive a copy of the assignment agreement.

Assignment is an important tool in the life insurance industry that allows policyholders to transfer ownership of their policies to other parties. Whether it is an absolute assignment or a collateral assignment, the process of assignment involves a legal transfer of rights and benefits from the policyholder to the assignee. It is important for policyholders to understand the implications of assigning their policies, and to consult with a qualified insurance professional before making any decisions.

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Assignment in Life Insurance: Process and Benefits

Life insurance policies are designed to provide financial security to policyholders and their beneficiaries. However, circumstances may arise where policyholders need to transfer the ownership or rights of their policy to another individual or entity. This could be due to reasons like securing a loan, settling debts, or transferring assets. In such cases, assignment of a life insurance policy or if you have LIC, then assignment of LIC policy becomes necessary. It involves legally transferring the rights and benefits of the policy from the assignor (policyholder) to the assignee (new owner), subject to certain terms and conditions.

To navigate through this aspect effectively, it is important to grasp what it entails, the types of assignments, considerations involved, and how it differs from nomination.

What is an assignment of life insurance policy?

An assignment of a life insurance policy refers to the transfer of ownership rights, title, and benefits of the policy from the original policyholder (assignor) to another party (assignee). In this process, the assignee becomes the new owner of the policy and is entitled to receive the death cover or maturity proceeds as specified in the policy terms. The assignment of a life insurance policy is typically irrevocable, meaning it cannot be reversed without the assignee's consent. This process is often undertaken for various reasons, such as securing a loan, fulfilling a legal obligation, or as part of a financial arrangement. By transferring the rights, the assignor effectively relinquishes all claims to the policy's benefits, ensuring that the assignee receives the agreed-upon financial protection or payout.

What are the different types of assignments of life insurance policy?

Following are the different types of assignments of life insurance policy:

Absolute assignment: In an absolute assignment, the policyholder transfers all rights, title, and interest in the policy to the assignee without any conditions. The assignee becomes the new owner of the policy and is entitled to receive the policy benefits.

Conditional assignment: A conditional assignment involves transferring the policy rights to the assignee subject to certain conditions or requirements. These conditions may include repayment of a loan, fulfilment of a debt obligation, or meeting specific criteria set forth in the assignment agreement.

Collateral assignment: In a collateral assignment, the policyholder assigns the policy as security for a loan or debt. The assignee (lender) becomes the beneficiary of the policy proceeds to the extent of the outstanding loan amount. Once the loan is repaid, the assignment is released, and the policy reverts to the original owner.

Factors to consider when assigning life insurance policy

Following are some of the key points to consider in assignment of life insurance:

Purpose of assignment: Determine the reason for assigning the policy, whether it is for securing a loan, transferring assets, or gifting the policy to another individual.

Legal implications: Understand the legal implications and consequences of assigning the policy, including any tax implications or potential impact on policy benefits.

Rights and responsibilities: Clearly define the rights and responsibilities of both the assignor and assignee in the assignment agreement, including the extent of policy benefits and any conditions or restrictions.

Policy terms and conditions: Review the terms and conditions of the policy to ensure compliance with the assignment requirements and any limitations imposed by the insurance company.

Consultation with experts: Seek advice from legal and financial experts to understand the implications of the assignment and ensure that it aligns with your overall financial goals and objectives.

What is a nomination in life insurance?

Nomination in life insurance refers to the process where the policyholder designates one or more individuals (nominees) to receive the policy benefits in the event of their demise. Unlike the assignment of life insurance policy, where ownership rights are transferred, nomination simply ensures that the designated nominees will receive the death cover. The policyholder retains full control over the policy during their lifetime, and the nomination can be changed or updated at any time. This process provides a sense of security, knowing that the financial interests of loved ones are safeguarded. However, it is important to note that a nomination does not override an assignment of a life insurance policy, as an assignee takes precedence over the nominee.

What are the different types of nominees?

Following are the different types of nominees:

1. Beneficial nominee: The nominee who receives the entire death cover, and no legal heir can claim the proceeds.

2. Minor nominee: A nominee under 18 years of age, for whom a legal guardian is appointed to handle the benefits until they reach adulthood.

3. Multiple nominees: The policyholder can nominate more than one person and specify the percentage of benefits each should receive.

4. Contingent nominee: A secondary nominee who receives the benefits if the primary nominee predeceases the policyholder.

5. Non-family nominee: In certain cases, policyholders may nominate non-family members, though this might require additional documentation.

Key facts to know about nomination

Following are some of the key pointers you must know when adding nominations:

Revocable process: Unlike the assignment of a LIC policy, nomination is a revocable process. Policyholders can change or update their nominees anytime during the policy term.

Legal validity: A nomination ensures that the death benefits are transferred directly to the nominees, avoiding legal complications unless there’s an assignment of life insurance policy.

Priority of rights: In case both nomination and assignment of life insurance policy exist, the rights of the assignee take precedence over those of the nominees.

Nomination in group policies: Nomination is also allowed in group insurance policies, providing similar benefits and rights to the nominees as in individual policies.

Nomination vs. will: A nomination is independent of a will; hence, it is crucial to ensure that the will and nomination align to avoid disputes.

What is the difference between nomination and assignment?

Here is an overview of the difference between a nominee and assignee.

In conclusion, the assignment of a life insurance policy is a significant financial decision that requires careful consideration and understanding of its implications. Whether it is transferring ownership rights, securing a loan, or settling debts, insurance policy assignment can have far-reaching consequences for both the assignor and assignee. By comprehending the nuances of policy assignment, considering the relevant factors, and seeking expert advice when needed, individuals can navigate through this aspect effectively and make informed decisions to meet their financial objectives.

Frequently asked questions

A release of assignment of life insurance policy refers to the cancellation or termination of the assignment arrangement between the original policyholder (assignor) and the assignee. This release may be initiated by the assignor once the conditions of the assignment have been fulfilled, such as repayment of a loan or settlement of debts. Once the release is executed, the ownership rights and benefits of the policy revert back to the assignor, and the assignee's interest in the policy is extinguished.

The process of assignment in life insurance involves transferring ownership rights of the policy from the original policyholder (assignor) to another party (assignee) through a formal agreement.

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What Is 'Absolute Assignment'

An absolute assignment is a legal term used to describe the transfer of ownership of a life insurance policy from one party to another. in this process, the original policyholder or owner gives up all rights and control over the policy to a third party, typically in exchange for something of value, such as money or a loan..

An absolute assignment is a legal term that describes the transfer of ownership of a life insurance policy from one party to another. In this process, the original policyholder or owner gives up all rights and control over the policy to a third party, typically in exchange for something of value, such as money or a loan.

When a policyholder assigns their life insurance policy, they are essentially transferring ownership of the policy to someone else, who then becomes the new owner of the policy. The new owner of the policy assumes all the rights and responsibilities of ownership, such as paying premiums, maintaining the policy, and receiving the death benefit if the insured person passes away.

The process of absolute assignment requires the original policyholder to sign an absolute assignment form, a legal document that transfers ownership of the policy to the new owner. This document must be signed by both the policyholder and the new owner and submitted to the insurance company for processing.

The absolute assignment of a life insurance policy is often used as collateral for a loan or a way to secure a debt. For example, a person may assign their life insurance policy to a bank or lender as collateral for a loan. If the borrower cannot repay the loan, the bank or lender can collect the death benefit from the policy to cover the outstanding debt.

In addition, absolute assignment is sometimes used in divorce settlements, where one spouse assigns their life insurance policy to the other as part of the property settlement agreement. This ensures that the other spouse receives the death benefit if the insured person dies.

It is important to note that once an absolute assignment has been made, the original policyholder has no control or rights over the policy. They cannot make changes to the policy, such as increasing or decreasing the coverage amount or changing the beneficiary. These rights now belong to the new owner of the policy.

In summary, an absolute assignment is a legal process of transferring ownership of a life insurance policy from one party to another. It requires the original policyholder to sign a legal document that transfers ownership to the new owner, who assumes all the rights and responsibilities of ownership. Absolute assignment is often used as collateral for loans or as part of a divorce settlement agreement. Once an absolute assignment is made, the original policyholder has no control or rights over the policy.

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15 Meaning of absolute assignment

An assignment is absolute if it purports to pass the entire interest of the assignor in the chose in action,

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Conditional Assignment of a Life Insurance Policy

Conditional Assignment means that the Transfer of Rights will happen from the Assignor to the Assignee subject to certain terms and conditions. If the conditions are fulfilled then only the Policy will get transferred from the Assignor to the Assignee.

The process of transferring rights of a Life Insurance Policy is called Assignment. There are 2 types of Assignment:

• Absolute Assignment
• Conditional Assignment

Conditional Assignment means that the Transfer of Rights will happen from the Assignor to the Assignee subject to certain terms and conditions. If the conditions are fulfilled then only the Policy will get transferred from the Assignor to the Assignee. Or the policy will get transferred from the Assignor to the Assignee till certain conditions are fulfilled. Once the conditions are fulfilled, the policy automatically gets transferred back to the original owner, i.e. the Assignor.

Let’s take an example:

Rahul owns a Life Insurance Policy of Rs 5 lakhs. He needs to take a loan for his daughter’s school admission. He thought of doing so by taking a loan from the insurer itself or any bank against his Life Insurance Policy of Rs 5 lakhs that he owned.

However, to take a loan from the insurer itself or any bank, he needed to transfer the rights of the Insurance Policy to that entity. Thus he would have had to perform Conditional Assignment of the policy to that Bank. Then the bank would be able to pay out the loan money to him by taking the Insurance Policy as collateral. Thus, if Rahul failed to repay the loan, then the bank would surrender the policy and recover their money.

Once Rahul’s loan is completely repaid, then the policy would automatically come back to Rahul. In case, Rahul died before completely repaying the loan, then also the bank can surrender the policy to get their money back. This type of Assignment is called Conditional Assignment.

Example in real life of Conditional Assignment happens in case of an Insurance Policy being taken by the employer as a perquisite for the employee and it would be given only if he stays with the company for at least 5 years. Then the policy would be purchased by the employer on the employee’s name, but it would get transferred to him only when he completes 5 years. Once the employee completes 5 years of service, the policy gets transferred to him. This type of assignment or transfer of rights of a Life Insurance Policy is called Conditional Assignment.

Sachin Telawane is a Content Manager and writes on various aspects of the Insurance industry. His enlightening insights on the insurance industry has guided the readers to make informed decisions in the course of purchasing insurance plans.

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• PREV DEFINITION 3rd Party Insurance Motor third-party insurance or third-party liability cover is a statutory requirement under the Motor Vehicles Act. Read More
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What is 'Absolute Assignment'

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• INSURANCE LIFE INSURANCE POLICY RIGHTS
• BENEFITS LIABILITIES ABSOLUTE ASSIGNMENT ASSIGNEE

: Motor third-party insurance or third-party liability cover, which is sometimes also referred to as the 'act only' cover, is a statutory requirement under the Motor Vehicles Act. It is referred to as a 'third-party' cover since the beneficiary of the policy is someone other than the two parties involved in the contract (the car owner and the insurance company). The policy does not provide any

An absolute assignment is the act of complete transfer of the ownership (all rights, benefits and liabilities) of the policy completely to other party without any terms and condition. Description: Absolute assignment shifts the ownership of the insurance policy. For instance, a policy owner X wants to gift his life insurance policy to another person named Y. Hence X is doing absolute assignment.

Accidental death benefit and dismemberment is an additional benefit paid to the policyholder in the event of his death due to an accident. Dismemberment benefit is paid if the insured dies or loses his limbs or sight in the accident. Description: In an event of death, the insured person gets the additional amount mentioned under these benefits in the insurance policy. These are the supplementary

A valuation of the damaged property, i.e. its monetary worth at market value immediately preceding the occurrence of the loss, is called actual cash value of the property. It gives the estimate of the cost of replacement or repair of the damaged asset. Description: To ascertain the exact extent of loss, the insurance company undertakes an evaluation of the property before and after the loss occur

Actuarial Science is a discipline that deals with assessing the risks in insurance and finance field using various mathematical and statistical method. Description: The professionals who carry out these tasks of ascertaining, analyzing and providing solutions of future uncertainties having financial risks are the actuaries. Mathematics of probability and statistics are the major tools they use to

A person with expertise in the fields of economics, statistics and mathematics, who helps in risk assessment and estimation of premiums etc for an insurance business, is called an actuary. Description: Insurance business requires advanced statistical and analytical skills for evaluation of risks and returns associated with each proposal. Insurance companies employ these experts from the field of

Adverse selection is a phenomenon wherein the insurer is confronted with the probability of loss due to risk not factored in at the time of sale. This occurs in the event of an asymmetrical flow of information between the insurer and the insured. Description: Adverse selection occurs when the insured deliberately hides certain pertinent information from the insurer. The information may be of crit

An agent is a person who represents an insurance firm and sells insurance policies on its behalf. Description: Generally, there are two types of such agents who reach the prospective parties that may be interested in buying insurance. These are independent agents and captive or exclusive agents. Independent agents may represent many insurance firms and receive commission for their services a

The total amount of premium paid annually is called the annualized premium. Description: Any insurance policy comes up with many premium payment options. Premium can be paid monthly, quarterly, semi annually and annually. For instance, if the monthly premium is Rs 2000, then the annualised premium will be 2000*12 = Rs 24000 Also See: Insurance, Concealment, Bancassurance

Annualized premium equivalent (APE) is a common measure of ascertaining the business sales in the life insurance industry. It is the sum of the regular annualized premium from the new business plus 10% of the first single premium in a given period. Description: APE is computed as: APE = Annualized regular premium + 10 % of single premium (Including top-up premium). Where annualized regular pre

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