Q. What is Life Insurance ??

What
circumstances can affect a Life Insurance
Policy ? And explain settlement of claims
are done in such type of insurance. 2+5+5=12

Q. Write short notes on 6+6 12

i) Functions of LIC.
(i) Nomination under section 39 of The
Insurance Act, 1938.
 LIFE INSURANCE

Life insurance is a contract between a policyholder and an insurance company, where the
policyholder pays the premium and receives a sum of money, upon the death of the insured or
after a certain period.

The sum of money which is known as the life cover helps to secure your family’s future
needs by paying them a lump sum amount in case of a death of the policyholder. However, in
many life insurance policies, the insured are paid an amount called maturity benefit which is
generally provided at the end of the policy term.

Key features of life insurance include:

1. Death Benefit:
 The core component of life insurance is the death benefit. This is the amount of
money that the insurance company pays to the beneficiaries named in the policy when
the insured person passes away. The death benefit is generally paid tax-free.
2. Premiums:
 Policyholders are required to pay regular premiums to the insurance company to keep
the policy in force. Premiums can be paid monthly, quarterly, annually, or in other
specified intervals.
3. Policy Types:
 There are various types of life insurance policies, including term life insurance and
permanent life insurance. Term life insurance provides coverage for a specified term
(e.g., 10, 20, or 30 years), while permanent life insurance, such as whole life or
universal life, provides coverage for the entire lifetime of the insured.
4. Cash Value (for Permanent Life Insurance):
 Permanent life insurance policies may accumulate cash value over time. A portion of
the premium payments goes into a cash value account, which can grow on a tax-
deferred basis. Policyholders may have the option to access the cash value through
loans or withdrawals.
5. Beneficiaries:
 The policyholder designates beneficiaries who will receive the death benefit upon the
insured's death. Beneficiaries can be individuals, such as family members, or entities
like trusts or charities.
6. Underwriting:
 When applying for life insurance, individuals may undergo underwriting, which
involves assessing their health, lifestyle, and other risk factors. The underwriting
process helps determine the insurability of the applicant and the cost of premiums.
7. Riders and Add-Ons:
 Policyholders can often customize their life insurance coverage by adding riders or
endorsements to the policy. Riders may provide additional benefits, such as
accelerated death benefits, waiver of premium, or coverage for specific events.

Nature of Life Insurance Contract

i) Unilateral Contract.

• only one party to the contract makes legally enforceable promise.

• The insurer can repudiate the contract of payment of full policy, but he cannot compel
the insured to pay the subsequent premiums.
• On the other hand, if the insured continues to pay the premium, the insurer has to
accept them and continue the contract.

ii) Conditional Contract.

• Life insurance is subject to the conditions and privilege provided on the back of the
policy.
 The conditions whether precedent or subsequent of the legal rights must be fulfilled in
order to complete the contract.

iii) Aleatory Contract.

• In such a kind of contract, no mutual exchange of equal monetary value is done.

• It is the happening of the contingency on which the payment is made. The happening
is a matter of chance which may occur or not.
• If death occurs only after payment of a few premiums, full policy amount is paid.

iv) Contract of Adhesion.

• In such a contract, the terms of the contract are not arrived at by mutual negotiations.
• Similarly, in a life insurance contract, the contract is decided upon by the insurer only.
• The party on the other side has to choose between the two options, i.e. either to accept
or reject the policy.

v) Contract of Certain Amount.

 • Life insurance contract does not provide an indemnity.
• It is in the nature of a contingency contract by providing for the payment of the agreed
amount on the happening of the event.

Here are some reasons why life insurance is not considered purely indemnity:

• Valuation of Human Life:

o Unlike property or possessions, human life is challenging to quantify in terms
of a specific monetary value. Life insurance doesn't aim to indemnify the
insured's family for the financial loss caused by their death but rather provides
a predetermined sum (the death benefit) upon the death of the insured.
• Speculative Nature:
o Life insurance involves an element of speculation because it pays out a
predetermined amount regardless of the financial loss experienced by the
beneficiaries. The death benefit is fixed, and the actual financial loss suffered
by the beneficiaries may be more challenging to ascertain accurately.
• Income Replacement and Financial Security:
o Life insurance is often purchased to provide financial security and income
replacement for the dependents of the insured. The death benefit is intended to
help the beneficiaries maintain their standard of living and cover future
financial needs, rather than strictly indemnifying them for a quantifiable loss.
• Risk Transfer and Risk Pooling:
o Life insurance involves the transfer of the risk of premature death from the
individual to the insurance company. The premiums paid contribute to a pool
that is used to cover the death benefits paid out to beneficiaries. It's a form of
risk pooling rather than strict indemnification.

vi) Standard Form of Contract.

. In the life insurance, all the essentials of a general contract as provided by the Indian
Contract Act, 1872, for a valid contract are present.

Kinds of Life Insurance

I) Term Policy.

• It provides a risk cover only for a prescribed period.

• Usually these policies are short-term plans and the term ranges from one year onwards.

If the policyholder survives till the end of this period, the risk cover lapses and no insurance
benefit payment is made to him.

The amount of premium to be paid for these policies is lower than all other life insurance
policies.

It has no surrender value.

This plan is most suitable for those who are initially unable to pay high premium.

II) Whole Life Policy.

This policy runs for the whole life of the assured.

The sum assured becomes payable to the legal heir only after the death of the assured.

• The whole life policy can be of three types.

a) Ordinary whole life policy.

• In this case premium is payable periodically throughout the life of the assured.

b) Limited payment whole life policy.

In this case premium is payable for a specified period (Say 20 Years or 25 Years) Only.

c) Single Premium whole life policy.

• In this type of policy the entire premium is payable in one single payment

III) Endowment Life Policy.

In this policy the insurer agrees to pay the assured or his nominees a specified sum of money
on his death or on the maturity of the policy which ever is earlier.

The premium for endowment policy is comparatively higher than that of the whole life
policy.

The premium is payable till the maturity of the policy or until the death of the assured which
ever is earlier.

It provides protection to the family against the untimely death of the assured.

IV) Joint Life Policy.

• This policy is taken on the lives of two or more persons simultaneously.

• Under this policy the sum assured becomes payable on the death of any one of those who
have taken the joint life policy.

The sum assured will be paid to the survivor(s).

• For example, a joint life policy may be taken on the lives of husband and wife, sum assured
will be payable to the survivor on the death of the spouse.

V) With profit and without profit policy.

Under with profit policy the assured is paid, in addition to the sum assured, a share in the
profits of the insurer in the form of bonus. Without profit policy is a policy under which the
assured does not get any share in the profits earned by the insurer and gets only the sum
assured on the maturity of the policy.

VI) Double accident benefit policy.

This policy provides that if the insured person dies of any accident, his beneficiaries will get
double the amount of the sum assured.

VII) Annuity policy.

Under this policy, the sum assured is payable not in one lump sum | in monthly, quarterly and
half-yearly or yearly installments afte assured attains a certain age.

This policy is useful to those who want to have a regular income after the expiry of a certain
period e.g. after retirement.

Annuity is paid so long as the assured survives.

VIII) Policies for women.

a) Jeevan Sathi Policy.

Jeevan Sathi is also known a Life Partner plan where the husband and wife. On maturity,
provided both are alive, full sum assured with bonus is paid.

On the death of one of the assured during the period of the policy, basic sum assured is paid
to the surviving partner, who is not required to pay any further premiums.

IX) Group insurance.

• Group life insurance is a plan of insurance under which many lives of many persons are
covered under one life insurance policy.

Usually, in group insurance, the employer secures a group policy for the benefit of his
employees.

• Insurer provides coverage for many people under single contract.

X) Policies for children

Marriage endowment and educational annuity plans.

Circumstances Affecting the Risk

Matters affecting the risk.

• Risk in life insurance is the risk of death at an early date due to disease as
distinguished from accident.
• Hence in life insurance facts which tend to shorten the span of the life of assured
would amount to the circumstances affecting the risk and those facts are regarded as
the material facts for purposes of the duty to disclose.
• It is common practice for the insurer to put specific question in the proposal form
about these facts.

a. Age of the proponent.

Age is an important material fact in the life insurance as the rate of premium depends on the
age of the insured.

b. Family history.

The risk in life policies depends on longevity of the assured and heredity throws sufficient
light and plays an important role in the determination of the probable longevity of a person.

Therefore medical officers usually put a number of questions about the birth and death of
brother, sister, parent and near relations, the disease from which they suffer then or suffered
in the past

*Insanity of the near relatives is one of the things to be revealed.

c. Personal health.

The present state of health is material because no prudent insurer would underwrite the life of
a person afflicted with a fatal disease or who is one on a death bed.

d. Geographical position.

The place where the applicant lives an important, as climate and environment have an
appreciable effect on the health.

Unhealthy surrounding have a tendency to shorten the life.

Further particular place may be subject to earthquake volcanoes and floods.

Therefore applicant must give his residential address.

e. Occupation.

If it is dangerous occupation like soldier, sailor, airman or a workmen in an ammunition

factory the insurer charge a higher rate of premium.

f. Habits in life

The habits of life past and present which tend to shorten the life must be disclosed e. g. the
use of opium, tobacco or alcohol.

Settlement of Claim

The easy and timely settlement of a valid claim is an important function of an insurance
company.

The measure to judge insurance company's efficiency is as to how quick the claim settlement
is.

The speed, kindness and fairness with which an insurer handles claims show the maturity of
the company and may lead to great satisfaction of the client.

• It is the liability of the insurance company to honour valid and legal claims. At the same the
company must identify the fraudulent and invalid claims.

• A claim may arise:

i) On death of Policyholder before the maturity date.

ii) On maturity, ie after expiry of the endowment period specified in the policy contract when
the policy money becomes payable

Death claims

I. Intimation of death

The death of the life assured has to be intimated in writing to the insurer.

It can be done by the Assignee or nominee under the policy or from a person representing
such Assignee or Nominee or when there is no nomination or assignment by a relative of the
life assured, the employer, the agent or the development officer.
Where policy is assigned to a creditor or a bank for valuable consideration, intimation of
death may be received from such assignee.

The intimation of the death of the life assured by the claimant should contain the following
particulars:

(1) his or her relationship with the deceased,

(2) the name of the policyholder,

(3) the number/s of the policy/policies,

(4) the date of death

(5) the cause of death and

(6) sum assured

II. Proof of death and other documents

In case of claim by death, after the receiving the intimation of death the insurance company
ensures that the insurance policy has been in force for the sum assured on the date of death
and the intimation has been received from assignee, nominee or other claimant.

The following documents are required:

(1) Certificate of death.

(ii) Proof of age of the life assured (if not already given).

(iii) Deeds of assignment / reassignments.

(iv) Policy document.

(v) Form of discharge.

If the claim has accrued within three years from the beginning of the policy, the following
additional requirements may be called for:

(i) Statement from the hospital if the deceased had been admitted to hospital.

(ii) Certificate of medical attendant of the deceased giving details of his/her last illness.

(iii) Certificate of cremation or burial to be given by a person of known character and

responsibility present at the cremation or burial of the body of the deceased.
(iv) Certificate by employer if the deceased was an employee. (v) In case of an air crash the
certificate from the airline authorities would be necessary certifying that the assured was a
passenger on the plane

(vi) In case of ship accident a certified extract from the logbook of the required.

(vii) If the life assured had a death due to accident, suicide or unknown cause the police
inquest report, panchanama, post mortem report, etc would be required.

Maturity claims

If the life insured survives to the full term, then basic sum assured is payable. This payment
by the insurer to the insured on the date of maturity is called maturity payment. The amount
payable at the time of the maturity includes a sum assured and bonus/incentives.

The insurer sends in advance the intimation to the insured with a blank discharge form for
filling various details in it.

It is to be returned to the office along with

1. Original Policy document

ii. Age proof if age is not already submitted

iii. Assignment /reassignment, if any.

Procedure of the maturity claims

After receipt of completed and stamped discharge form from the person entitled to the policy
money along with policy documents, claim amount will be paid by account payee cheque. If
the life assured is reported to have died after the date of maturity but before the receipt is
discharged, the claim is to be treated as the maturity claim and paid to the legal heirs.

In this case death certificate and evidence of title is required.

Where the assured is known to be mentally deranged, a certificate from the court of law
under the Indian Lunacy Act appointing a person to act as guardian to manage the properties
of the lunatic should be called.

Additional benefits apart from regular claims

Double Accident Benefit:

Normally for claiming this benefit documents like FIR, Post-mortem Report are required.
Disability Benefit Claims

Waiver of all premiums to be paid in future till the expiry of the policy of the life assured if a
person is totally and permanently disabled and cannot earn any wage/compensation/profit as
a result of the accident.

PRINCIPLES OF LIFE INSURANCE

1. Risk Pooling

Life insurance is based on a concept called risk pooling, or a group sharing of losses. People
exposed to a risk agree to share losses fairly or on an equitable basis. They transfer the
economic risk of loss to an insurance company. Insurance companies collect and pool the
premiums of thousands of people, spreading the risk of losses across the entire pool. By
carefully calculating the probability of losses that will be sustained by the members of the
pool, insurance companies can equitably spread the cost of the losses to all the members. The
risk of loss is transferred from one to many and shared by all insured in the pool.

Example of Risk Pooling

Ten thousand males aged 35 contribute to a life insurance pool. If Twenty-one of them are
expected to die this year and each of the 10,000 contributes `210 to fund death benefits
(ignoring costs of operation), a death benefit of `100,000 could be paid for each of the 21
expected deaths.

2. The Law of Large Numbers

The law of large numbers states that as the size of the sample (insured population) increases,
the actual loss experience will more and more closely approximate the true underlying
probability. This means that the insurer’s statistical group must be large enough to produce
reliable results, and that the group actually insured must be large enough to produce results
that are consistent with what probability predicts. Insurance relies on the law of large
numbers to minimize the speculative element and reduce volatile fluctuations in year-to-year
losses. If a life insurance policy is to protect an insured during his or her entire life, an
adequate fund must be accumulated to meet a claim that is certain to occur.

3. Principle of Utmost Faith

Insurance contract is one of utmost good faith. The rule of caveat emptor [let the buyer
beware] does not generally apply. This doctrine is supported by Representation through an
application Concealment Warranty.

The application and its interpretation

They need to have utmost good faith in each other, which implies full and correct disclosure
of all material facts by both parties to the contract of insurance. The term “material fact”
refers to every fact or information, which has a bearing on the decisions with respect to the
determination of the severity of risk involved and the amount of premium. The disclosure of
material facts determines the terms of coverage of the policy. Any concealment of material
facts may lead to negative repercussions on the functioning of the insurance company’s
normal business. For instance life insurance companies normally segregate the quality of
lives depending upon the state of health of the people. Healthy people are accorded a higher
status in the table and different (lower) rates of premium are applicable to them since their
risk of ill health is lower. If a person suppresses facts about his ill health and manages to buy
a policy at rates applicable to the low risk group then other policyholders in the same group
have to share his risk. This results in adverse selection. Hence as per the principle of utmost
good faith it is binding on the part of parties, the insured and the insurer, to expressly disclose
all the relevant material facts pertaining to the contract. Non-compliance by either party or
any non-disclosure of the relevant facts renders the contract null and void.

4. INSURABLE INTEREST

The object of Insurance should be lawful for this purpose; the person proposing for Insurance
must have interest in the continued life of the insured & would suffer pecuniary loss if the
insured dies. If there is no insurable interest, the contract becomes wagering (gambling)
contract. All wagering contracts are illegal & therefore null & void.

Insurable interest in Own Life Policy

So long as the Insurance is on one’s own life, the “Insurance Interest” presents no difficulty.
A person has insurable interest in his own life to an unlimited extent. The absence of a limit
in this case is reasonable. When a person insures his life he obtains protection against loss to
his estate. Hence no limit may be fixed in respect of life Insurance he may effect. Where,
however, insurer rejects a proposal for an amount of assurance, which is disproportionate to
the means of the proposer, it is not normally for lack of Insurable interest but on
considerations of “moral hazard”. Indeed it may also be presumed in a case where a person
proposes for a policy for a large amount, which he may not be able to maintain having regard
to his income, that it will be financed by some other person and that there is no insurable
interest.

Insurance on the Life of Spouse

As a wife is normally supported by her husband, she can validly affect insurance on her life
for adequate amount. The service and help rendered by the wife used to be thought of as the
basis of insurable interest which supports any policy which a man takes on the life of his
wife.

Insurable Interest on the Insurance taken on the Life of Parent and Child

Following the practice in U.K. in India also a parent is not considered to have insurable
interest in the life of the child. The same is the case with a child in respect of his parent’s life.
Whether this position requires to be reviewed now appears to be engaging the attention of
people here. A Hindu is under a legal obligation to maintain his parents. Even as per
traditional law Sec.20 of the Hindu Adoption and Maintenance Act has given statutory form
to the legal obligation. The parents have, therefore, a right to maintenance subject to their
being aged or infirm. An order for maintenance of parents may also be passed under Sec. 125
of the Code of Criminal Procedure, 1973. It may be stated, therefore, that a parent has
pecuniary interest in the life of the child, and an assurance effected on that basis cannot be hit
by Sec.30 of the Contract Act as a wagering contract. However, it may be noted that the
pecuniary interest is not a present interest unless the parent is unable to maintain himself or
herself at the time when the Insurance is effected. It may therefore, be argued that a parent
cannot have insurable interest in the life of the child until the right to maintenance arises; but
when a person is not able to maintain oneself how can he be expected to have the means to
insure the life of his children? As a matter of fact in India, even today a child is a potential
breadwinner for the parents in their old age. The present affluent circumstances of a parent do
not alter that situation. Under the traditional law a right to maintenance could be claimed only
against the sons; the statute has now extended the obligation to the daughters as well. Having
regard to the social and economic set up of the people in the country a review of the question
seems to be appropriate.

Insurable Interest on the life of Other Relations

In the case of other relations, insurable interest cannot be presumed from the mere existence
of their relationship. Moral obligations or duties are not sufficient to sustain an insurable
interest. In every other case, the insurable interest must be a pecuniary interest and must be
founded on a right or obligation capable of being enforced by Courts of law. The following
are illustrations of such cases of insurable interest:

(a) Employer – Employee: An employer has insurable interest in the life

of his employee, and the employee in the life of the employer; An
employer can create insurable interest in the lives of his employees by
undertaking to provide monetary benefit to the family or estate of the
employees in the event of death. Group Insurances effected by
companies on the lives of their employees are on the basis of such
insurable interest.
(b) Creditor – debtor: A creditor has insurable interest in the life of his
debtor upto the amount of the debt; This is not a satisfactory basis; for
in the event of death of the debtor after the debt has been repaid, the
creditor would still be entitled to the policy moneys and thus can be in
a position to gain by the death of the debtor once the loan is repaid.
The better arrangement would be for the debtor to take out a policy for
the required amount and mortgage the policy to the creditor. The
creditor then cannot take benefits under the policy in excess of his
dues.
(c) Partner: A partner has insurable interest in the life of his co-partner to
the extent of the capital to be brought in by the latter.
(d) Surety and principal debtor-Co-surety: A surety has insurable interest
in the life of his co-surety to the extent of the proportion of his debt
 and also in the life of his principal debtor. Effect on Contract when
Insurable interest is not present: Where, therefore, the proposal is on
the life of another, unless the proposer has insurable interest in the life
to be assured, the contract shall be void. Lack of insurable interest is a
defence, which the insurer may plead in resisting a claim. There may
be also cases where Insurance on one’s own life is surreptitiously
financed and held by another for his benefit, which if detected by the
insurer, may be declared void. As a life Insurance contract is not one of
indemnity, the existence of insurable interest and the amount thereof
will have to be considered at the time of effecting the contract since
lack of such interest would render the contract void. If insurable
interest existed at the inception of the policy, the contract would be
enforceable though such interest might cease later.
5. REPRESENTATION
All disclosures relating to an insurance policy must be made at the time of entering
into the insurance contract. The insurance company hands over the application
proforma to the person buying insurance seeking complete details. The person has to
mention his profession, income, age, family, history of family, general health,
ailments suffered, medical reports, matters relating to conduct and character, any
criminal record, etc. Similarly in case of general insurance while insuring an asset all
facts regarding the condition, frequency of usage, wear and tear that may have
occurred have to be disclosed by the buyer. These details given by the proposer
known as representations demand correct and full disclosure by the buyer of
insurance. Though it may not be possible in the proforma to ask all the required
questions since the details vary from person to person, the insurance company
determines the materiality of the given facts by exercising due diligence through
proper scrutiny. It is also open to an insurer to seek clarification regarding gaps in
information to be furnished. If required, further enquiry is made. This is important,
because based on this, the severity of risk is assessed and the amount of premium to
be charged can be determined. The application also mentions the stipulations and
conditions which when fulfilled obligate the insurance company to fulfill its promises.
It has to be noted that it is the duty of the insurer to inform and explain the insured
about the working of those stipulations and broadly set the conditions in which the
insurer may be relieved of such obligations to give the insured an idea about the
performance of the contract. This helps in dispelling any misunderstanding or
ignorance. Of course certain information, which is normally assumed to be of
common knowledge to everyone, need not be disclosed. Thus while buying insurance
for an electric generator in India it is not necessary to mention that power failure is
common in India and that the gadget will be used more often. Also when a person
buys a second policy from the same insurer it is presumed that the insurer will check
for the relevant facts about him by referring to the first policy and without seeking
explanation all over again. Information related to following matters need not be
disclosed:
1. Facts related to law
 2. Facts of common knowledge to all
3. Facts which can reasonably be discovered by the insurer
4. Facts which could have been revealed by a survey
5. Facts which have been covered by policy conditions
6. Facts which reduce the risk

Implications of concealment, non disclosure or misrepresentation by the insured

It may turn out from the representations furnished by the customer that the details are
incomplete or any important information is concealed or is misleading. In such circumstances
it is the choice of the insurer whether to: 1. Incorporate the required changes in the contract
and charge a different premium. 2. Accept the policy and pay compensation especially if the
facts have negligible importance. 3. Avoid any obligation on its part as per the policy. It has
to be proved by the insurer that the non-disclosure or misrepresentation was intentional on the
part of the insured to commit fraud and deceive the insurer before it can stop payment of
compensation. As per section 45 of the Insurance Act the insurance company can resort to
this stance before the passage of two years after which it cannot take such recourse. Non-
disclosure may be unintentional on the part of the insured. Even so such a contract is
rendered voidable at the insurers option and it can refuse any compensation. Any
concealment of material facts is considered intentional. In this case also the policy is
considered void. Suppose a person discovers that he has cancer, which is in its last stages and
is hopeless to go for medical treatment. Immediately he buys a life insurance policy where he
conceals this fact from the insurers. He dies four months after buying the policy. The
insurance company can contest the claim for payment of policy proceeds to his beneficiary on
the ground that a vital fact material to the contract was concealed.

Implications of non-disclosure by the insurer

It is true that in a contract of insurance the insured has to furnish more information about him.
But there are certain covenants in a contract, which have to be thoroughly elaborated to the
insured. These relate to the conditions in which the insurance company may or may not
perform its promises. It has to be noted that it is the duty of both the insurance agent and the
company authorities that this particular aspect is looked into. Any laxity at this point may tilt
the judgments in favor of the insured in case of a dispute.

Example In the case of LIC vs. Shakuntalabai, the insured had availed a life insurance policy
from LIC. Before taking the policy he had suffered from indigestion for a few days and at the
first instance had availed treatment from an ayurvedic doctor. This fact was not disclosed by
the insured. The insured died of jaundice within a few months after buying the policy.
Eventually LIC refused to accept the claim on the ground of non-disclosure of information.
However the court rejected this stand of LIC since it had not explained this covenant clearly
to the insured, which amounts to non-compliance of its responsibilities. Such casual ailments
are common and occur many times over and they can be treated by over the counter drugs. It
is normally not possible for a person to distinguish a potentially serious ailment inherent in
such symptoms. Also it is not possible for a person to remember the details of all such
illnesses like cough, cold, headaches, etc., and the medications taken for them after a few
months. So these facts are not to be considered as material to the contract and thus their
nondisclosure does not invalidate the contract.

ASSIGNMENT

Assignment is the transfer of the rights to receive the benefits under a contract accruing to the
party to that contract. In life insurance parlance, assignment is the transfer of rights to receive
benefits stated in the life insurance policy from the Policyholder to the Assignee. The benefits
under an insurance policy accrue by way of survival benefits and death benefits. While death
benefits accrue in every insurance policy, survival benefits typically relate to maturity
benefits under an insurance policy with an underlying investment component, e.g.
Endowment Policy, Money-back Policy, Unit Linked Insurance Policy etc. The concept and
procedure for Assignment is dealt with under Section 38 of the Insurance Act, 1938. The
Section treats an Assignment and a Transfer at par. It lays down that a transfer or assignment
of a policy of life insurance, whether with or without consideration, may be made only by an
endorsement upon the policy itself or by a separate instrument, signed in either case by the
transferor or by the assignor or his duly authorised agent and attested by at least one witness,
specifically setting forth the fact of transfer or assignment. In practice, a ‘space for
endorsements’ is provided in the insurance policy contract where the Policyholder (Assignor)
affixes the statement of assignment alongwith reasons therefor. This endorsement is required
to be signed by the Policyholder and the signature should be witnessed by any person
competent to contract. An assignment can be only for valid reasons. The insurance policy can
be assigned for reasons of ‘love and affection’ within the immediate family members, or for a
‘valid consideration’ to any external person or entity. A majority of insurance policy
assignments are carried out towards providing the insurance policy as a collateral security
towards loans taken from financial institutions. In these cases, a condition is added to the
endorsement which states that on the repayment of the loan, the policy shall stand
automatically re-assigned to the policyholder and the future benefits shall become payable to
the policyholder. Assignment of an insurance policy to an unrelated person without a valid
consideration is also viewed as a possible route for money laundering, thereby attracting
enhanced scrutiny. Under the current laws, the Insurer has the limited authority of ensuring
that the assignment documents are in order and has the obligation to register the assignment.
The Insurer cannot deny an assignment. An assignment is effective on the date when the
assignment documents in proper order are received by the Insurer. Upon registration of the
assignment with the Insurer, the Assignee becomes the absolute owner of the benefits under
the policy. Any nominations made by the Assignor (Policyholder) stands cancelled. However
some insurance policies enable granting of a loan by the Insurer, in which case the Policy
gets assigned to the Insurer. Under such assignments, if the policy is reassigned or if the
assignment is cancelled, the nomination made earlier by the policyholder survives and the
policyholder is not required to make a fresh nomination after reassignment.

NOMINATION

Nomination is a facility that enables a Policyholder to nominate an individual, who can claim
the proceeds of the Policy, upon the demise of the Policyholder.