Assignment and nomination in life insurance is kind of a safety product. It allows you to leave a financial safety net for the welfare of your loved ones in the unlucky event that you pass on. With regard to life insurance policies two concepts are prevalent which are assignment and nomination. These features enable the policyholders to explain how the proceeds of the policy will be paid out at his or her death. So that the intentions of the policy owner are fully executed.
What is Assignment in Life Insurance?
Assignment in life insurance is the process under which legal entitlements of a policy holder as assignor are passed on to another person or an organization known as assignee. This transfer can be made for many reasons, for instance to get a loan, giving the policy to a member of the family or to meet an obligation.
Types of Assignment
- Absolute Assignment: In an absolute assignment, the policyholder surrenders all rights and all the privileges under the policy to the assignee with permanency. After the assignment has been made the assignee becomes the new owner of the policy and he is in a position to receive the pay up on the death of the life assured.
- Conditional Assignment: A conditional assignment is paid from a policy with some conditions fixed upon in order to activate the benefits for the assignee. This kind of assignment is common in cases of attracting a loan. Here the provider of the loan takes an assignment of the leases until the amount lent is recovered.
What is Nomination in Life Insurance?
In life insurance, there is what is referred to as nomination, whereby the policyholder can name a nominee. The nominee will benefit from the policy, in the event of the policyholder’s death. This person can be a family member, relative or any other person the policyholder deems fit to be the nominee.
Types of Nomination
- Revocable Nomination: Such nominations are what are referred to as revocable nominations. It means that the policyholder may alter or rescind the nomination at any point in time before the occurrence of the claim. It becomes convenient for the policyholder to modify for instance the nominee periodically.
- Irrevocable Nomination: An irrevocable nomination can’t be canceled or altered without the permission of the nominee. Where an irrevocable nomination has been made, the nominee acquires the rights of a policy and its proceeds.
Significance of Assignment and Nomination
While assignment and nomination of life insurance features are beneficial with an heir. They are very crucial. The policyholders are in a position to take care of their loved ones as intended due to adequate financial security. These features involve a right of assignment or nominee whereby the life insurance benefits are clear. It is defined in the event of accrual of ownership rights thereby adding legal certainty to the award of the benefits.
In conclusion, assignment and nomination are two powerful executory clauses. They are the vital parts of the life insurance policy.
