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Multiple terms in insurance are necessary to be understood before someone buys a life insurance policy. Likewise, understanding the key difference between nomination and assignment is essential for policyholders to maximize the benefits of their life insurance plans while ensuring financial security for their loved ones. Let’s discuss assignment vs nomination in detail here.
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A nominee is a person chosen by the policyholder to receive the benefits of the life or term insurance policy if he/she unfortunately passes away. Your nominee can be a spouse, parent, child or sibling. When buying a policy, it's important to provide a nominee's name and correct details to ensure the benefits go to the right person.
Here are the different types of nominees in life insurance:
Beneficial Nominees:
By law, only immediate family members like spouses, children, or parents nominated by the policyholder can receive the financial benefits and become the rightful owners of the death claim benefits. Knowing that only immediate family members can be called Beneficial Nominees is essential.
Minor Nominees:
Many people name their children as beneficiaries in their life insurance policies. However, if the nominee is a minor (under 18 years old), they cannot manage claim amounts. In such cases, the policyholder must appoint an appointee or custodian. The claim amount is then paid to the appointee until the minor reaches 18.
Non-family Nominees:
These nominees can be distant relatives or even friends designated as beneficiaries of the life insurance policy. Usually, non-family nominees aren’t allowed to be the direct beneficiary of the death claim benefit.
Changing Nominees:
Policyholders can change their nominees whenever needed, but the latest nominee should replace all previous ones.
Term Plans
Policy assignment refers to transferring the rights, title, and ownership of the life insurance policy from the policyholder to another person or entity. The person transferring the policy is called the assignor, while the recipient is called the assignee. This transfer is governed by Section 38 of the Insurance Act, 1938.
Here are the different types of assignments in life insurance:
Absolute Assignment:
Absolute Assignment involves transferring all rights, title, and interest in the policy from the assignor to the assignee permanently, without any conditions. This assignment typically occurs for reasons like obtaining a loan or showing affection towards family members.
Conditional Assignment:
Conditional Assignment means that the transfer of rights occurs from the assignor to the assignee only if certain conditions are met. If these conditions are fulfilled, then the policy is transferred accordingly.
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Here are the differences between nomination and assignment:
| Parameters | Nomination | Assignment |
| Source | You need to mention the names of the nominees. | You need to endorse the contract policy. |
| Ownership of Policy | Ownership of a life insurance policy does not change under nomination, and it continues with the life assured. | Assignment involves transferring ownership/rights from the assignor (policyholder) to the assignee (entity). |
| Purpose | Nomination allows the nominee to avail claim benefits in case of the unfortunate death of the policyholder. | The policyholder will transfer all rights/ownership of the life insurance policy to another person. |
| Consideration | Nomination does not support any consideration. | The assignment may/may not support any consideration. |
| Witness | A witness is not necessary for nomination. | Without a witness, the assignment is considered invalid. |
| Right to Sue | The nominee cannot sue the life assured of the policy. | The assignee has all rights to sue the assignor of the life insurance policy. |
| Life Cover | The nominee is entitled to claim benefits in case of the policyholder's unfortunate death. | The assignee is entitled to receive the policy amount/life cover. |
Here are some points that you must keep in mind about nomination and assignment in life insurance:
When the policyholder and the insured person are the same, they can nominate someone to receive the claim benefits. However, if they are different, only the policyholder can receive the benefits.
Nominees cannot make changes to the policy.
You can have more than one nominee listed in your policy.
If the first nominee passes away, the benefits go to the next nominee listed, and so on.
With assignment, only the ownership of the policy changes, not the risk. The insured person remains the same.
If the policy is assigned to the insurance company for a loan, the nomination may be cancelled.
Assignment applies to all insurance plans except Pension Plans and policies under the Married Women's Property Act (MWP).
The assignment is done by endorsing the policy contract.
Understanding the difference between nomination and assignment in insurance is crucial for policyholders when buying life insurance. While nomination safeguards the interests of both the insured and the insurer by ensuring the rightful recipient of claim benefits, assignment serves to protect the assignee's interests in receiving financial benefits. By being aware about these aspects, policyholders can make informed decisions that align with their financial goals and ensure the effective management of their life insurance policies.
Note: It is suggested to calculate the term plan premium on the term policy calculator online tool by Policybazaar before buying.
Note: Check all the best term insurance plan in India.
Note: You should also check the benefits of term life insurance if you are planning to purchase the term insurance plan.
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+Rs. 487/month (Rs.16/day) is starting price for a 1 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 38 years of age.
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We will respond in the first instance within 30 minutes of the customers contacting us. 30-minute claim support service is for the purpose of giving reasonable assistance to the policyholder in pursuance of the claim. Settlement of claim (including cashless claim) is the responsibility of the insurer as per policy terms and conditions. The 30-minute claim support is subject to our operations not being impacted by a system failure or force majeure event or for reasons beyond our control. For further details, 24x7 Claims Support Helpline can be reached out at 1800-258-5881
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+Rs. 820/month is starting price for a 2 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 38 years of age.
+Rs. 1,443/month is starting price for a 5 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 38 years of age.
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