Assignment of a life insurance policy – 12

Restrictions on assignment

Restrictions on assignment apply to assignors/ assignees / products.

Assignment being a transfer of property it cannot be done by a minor life assured. All conditions of ‘capacity to contract’ are relevant in making an assignment. In case of a juristic person (like a company) a power of attorney holder or an official holding authority to assign under Articles of Association or through a Board resolution alone can effect an assignment / reassignment.

Some insurers put conditions on their products that such and such products cannot be assigned. So read policy conditions to see if there is any such restriction on your policy.

Annuity and pension policies cannot be assigned in India. Unlike in the U.S. in India we do not have a law like the one on viatical settlements.  Group policies cannot be assigned. Master policyholder is holding a policy for the benefit of many persons named in the policy. However during acquisition or merger of companies group policies in the name of the acquired company may be transferred to the acquiring company with the consent of the insurer     and as per contract of mergers / acquisitions.

Restrictions have been put on life insurance agents and officials and officers of courts becoming assignees of policies if the assignor is not a relative.

Assignment of a life insurance policy – 9

Assignment and premium payment

 An assignee has acquired all the rights and liabilities of the assignor. Rights can be understood as all benefits of the policy. Liabilities can be understood as payment of premium, repayment of loan on the policy, if any etc. A natural doubt may come up in your mind as to why then on all policies assigned to institutions for availing housing loans etc the original policyholders (assignors) continue to pay premiums.

This is the result of a clause in the loan agreement, which makes it the responsibility of the assignor to pay premiums and keep in force the life insurance policy that is offered as a collateral security. Some companies may stipulate that if the assignor does not pay premiums the assignee will pay the premiums and add that amount and interest there on to the loan amount.

There are cases where the employer takes the policy ownership through assignment and insist that the premiums shall be paid by the employee. This may be for loans granted for different purposes or on amount spent on the foreign training of the employee.

In all such cases the assignee retains the right to surrender the policy and avail of surrender value. On maturity or death claim the claim moneys belong to the assignee.

Key words:

Assignment

Assignor

Assignee

Housing loan

Assignment of a life insurance policy – 7

Secondary market for life insurance

A life insurance contract, in reality, is purchased by the insurer at full price on maturity. On lapsing of a policy without acquiring paid up value the insurer gives zero price for the contract. When a policy is surrendered the insurer gives a price lower than the actual value and acquires the contract.

Assume that the paid up value of a policy is Rs.100. And the insurer gives a surrender value of Rs.37 to the customer. Now you can offer Rs.40 and acquire the policy through an absolute assignment. You can wait till maturity to receive Rs.100 or assign it to some one else for Rs.45 making a gain in the process. But the customer gets 3% more while surrendering the policy. This creates a secondary market for sale of life insurance policy, the first market being the insurer himself. This helps trading of life insurance policy, just like a debenture or bond. The customer can assign his policy to that person who offers the highest surrender value. For the assignor it offers a higher surrender value. For the assignee it provides better return on his investment.

What is to be remembered here is – in debenture or bond transfer no life risk is involved. In life insurance policy life risk of the life assured is involved.

An analysis of secondary markets in life insurance is available in my paper on the subject published in the journal of the National Insurance Academy. 

Key words:

Assignment

Assignor

Assignee

Secondary market in life insurance

Assignment of a life insurance policy - 6

A absolutely assigns his life insurance policy to B. B, later assigns the policy to A. B has done a reassignment. That is, B has assigned the policy to the original assignor.

If B assigns the policy to C it is not called reassignment. It is only an assignment, where B is the assignor and C s the assignee. All the rights and liabilities possessed by B are transferred to C.

The immediate effect of assignment is that it cancels ‘nomination’ in the policy. However this has one exception. If the assignment is made:

1. against a loan granted from within the surrender value of the policy;
2. loan is granted by a life insurer; and
3. that life insurer shall bear the risk on the life covered in the policy.

The assignment of an LIC policy against a housing loan granted by LIC cancels nomination (housing loan is not from within sv). Assignment of an LIC policy to Central Bank against a loan granted from within the surrender value cancels nomination (because CB in not insurer). If ICICI Prudential gives a loan on your LIC policy from within the surrender value, and the LIC policy is assigned to ICICI Prudential, it cancels nomination (ICICI Pru does not bear risk on the life).

Assignment of a life insurance policy – 5

Sec.38 (2) of the Insurance Act, 1938 speaks about giving a notice of assignment to the insurance company. But the section is silent about who shall give a notice to the insurer.  Have you noticed this? Whether notice shall be given by the assignor, assignee, or both or their legal representative?

The answer to this is given in sec.132 of the Transfer of Property Act, 1882, which is reproduced here: ‘Notice to be in writing, signed: Every notice of transfer of an actionable claim shall be in writing, signed by the transferor or his agent duly authorized in this behalf, or, in case the transferor refuses to sign, by the transferee or his agent, and shall state the name and address of the transferee.

Therefore notice of assignment may be signed by the assignor, assignee or by a person authorized for the purpose by either of them. In every notice of assignment name and address of the assignee must be given.

Key words

Assignment

Assignor

Assignee

Notice of assignment

Assignment of a life insurance policy – 4

An assignment of a life insurance policy may be effected by the policyholder. Policyholder may be the life assured. It can also be an absolute assignee. And the absolute assignee need not be an individual. So the word used in section 38 is “Person”. ‘Person’ covers natural as well as artificial / legal persons.

Legal person such as a company becomes policyholder when it purchases life insurance on the life of its employee / director or when some one assigns his policy to the company absolutely. When some one avails of a housing loan from a housing company it insists on absolute assignment of the life insurance policy of the loanee in its favour. A legal person acts through its agents. It cannot act on its own.  For a company which is the principal, Agents are its officers vested with administrative or managerial powers. There happens a delegation of powers either through Standing Orders / Staff Rules / Articles of Association / specific delegation through power of attorney / resolutions passed by Board or general meeting of the company/Society / co-op bank / Association etc.

So when ever an assignment (it includes reassignment) is effected by a company/society/Co-op.bank / Association the insurer’s office should ensure that the assignment is signed by ‘an authorized person’, i.e. a person authorized to be an agent of the company / society / co-op.bank / association. Always ask for the authority of the person who has signed the assignment, by asking for a copy of the Resolution or an extract of the relevant rule / regulation that authorizes him to assign  policies. 

Assignment of a life insurance policy – 3

See the following effects of assignment:

1. Assignee becomes the only person entitled to benefits under the policy
2. Assignee’s rights are subject to all liabilities and equities to which the assignor was subject
3. Assignee may institute any proceedings in relation to the policy without making assignor a party thereto
4. Conditional assignment is valid notwithstanding any law or custom having the force of law to the contrary.

Let us go through the relevant provisions of law. Section 38 (5), (6) and (7) are reproduced below:

Sec.38 (5): Subject to the terms and conditions of the transfer or assignment, the insurer shall, from the date of receipt of the notice referred to in sub-section (2),  recognize the transferee or assignee named in the notice as the only person entitled to benefit under the policy, and such person shall subject to all liabilities and equities to which the transferor or assignor was subject at the date of the transfer or assignment and may institute any proceedings in relation to the policy without obtaining the consent of the transferor or assignor or making him a party to such proceedings.

38 (6): Any rights and remedies of an assignee or transferee of a policy of life insurance under an assignment or transfer effected prior to the commencement of this Act shall not be affected by provisions of this section.

38 (7): Notwithstanding any law or custom having the force of law to the contrary, an assignment in favour of a person made with the condition that it shall be inoperative or that the interest shall pass to some other person on the happening of a specified event during the life time of the person whose life is insured, and any assignment in favour of the survivor or survivors of a number of persons shall be valid.

Key words:

Assignment

Assignor

Assignee

Conditional assignment.

Assignment of a life insurance policy -2

We have seen in the last Post that an assignment is complete and effectual upon the execution of the endorsement / instrument by signature of the assignor and attestation of it by witness.

Insurer is unaware of this. If the assignor applies for a duplicate policy the insurer will issue it. If a claim is due on the policy the insurer will pay it to the assignor. The assignor can continue many transactions on the policy without the knowledge of the assignee. To avoid such situations a notice shall be given to the insurer. That makes the insurer to take cognizance of the assignment. We now read sub-section (3) & (4) of Section 38.

Sec.38 (3): The date on which the notice referred to in sub-section (2) is delivered to the insurer shall regulate the priority of all claims under a transfer or assignment as between persons interested in the policy; and where there is more than one instrument of transfer or assignment the priority of the claims under such instruments shall be governed by the order in which the notices referred to in sub-section (2) are delivered.

Sec.38 (4): Upon receipt of the notice referred to in sub-section (2), the insurer shall record the fact of such transfer or assignment together with the date thereof  and the name of the transferee or the assignee and shall, on the request of the person by whom the notice was given, or of the transferee or assignee, on payment of a fee not exceeding one rupee, grant a written acknowledgement of the receipt of such notice;  and any such acknowledgement shall be conclusive evidence against the insurer that he has duly received the notice to which such acknowledgement relates.  

Key words:

Instrument of transfer

Assignment

Assignor

Assignee

Endorsement

Assignment of a life insurance policy-1

‘Assignment’ is a transfer of property. The policyholder transfers his property in the policy to some one else through assignment. When you write on your policy bond that “I have assigned this policy to X for valuable consideration / natural love and affection” and signs it and get it witnessed, the assignment is complete in all respects. The policy now belongs to X, if the assignment is absolute. I shall deal with assignment in some detail in my next Posts.

The effects of assignment by writing on the policy are:

1. Though it is a transfer of property, it is exempted from Stamp Duty
2. It need not be registered with the Sub Registry
3. It cancels nomination
4. Absolute assignee becomes policyholder
5. Policy holder gets all benefits and he shall pay future premiums
6. If life assured dies, claim is paid to absolute assignee
7. If absolute assignee dies, there is no claim, policy continues

                                              

Please read the following sub-sections of Sec.38 of the Insurance Act, 1938.

38 (1): 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, his duly authorized agent and attested by at least one witness, specifically setting forth the fact of transfer or assignment.

38 (2): The transfer or assignment shall be complete and effectual upon the execution of such endorsement or instrument duly attested but [except where the transfer or assignment is in favour of the insurer] shall not be operative as against an insurer and shall not confer upon the transferee or assignee, or his legal representative, any right to sue for the amount of such policy or the moneys secured thereby until a notice in writing of the transfer or assignment   and either the said endorsement or instrument  itself or a copy thereof  certified to be correct by both transferor and transferee or by their duly authorized agent have been delivered to the insurer, provided that where the insurer maintains one or more places of business in India, such notice shall be delivered only at thee place in India mentioned in the policy  for the purpose or at his principal place of business in India.

Key words:

Assignment

Nomination

Endorsement

Stamp duty

Policy moneys protected from attachment

Please note that life insurance policy moneys, in India, are protected from attachment by a court as per the Civil Procedure Code. Section 60(1) of the Civil Procedure Code says.. ”Provided that the following particulars shall not be liable to attachment or sale, namely:

(kb) all moneys payable under a policy of insurance on the life of the judgment debtor”.

This principle was upheld by the Madras High Court in LIC of India vs John Bosco and others (Order dated 16-4-2002) AIR2002 Madras 348. It said, “ …If that be so, even though in the instant case the decree holder / first respondent proposed to attach the policy amount payable to the father of the judgment debtors /Respondents 2 and 3 , in my considered opinion, it would offend the legislative object enshrined under proviso (kb) to Section 60(1) C.P.C, and therefore, such policy amount of the father of the judgment debtors / Respondents 2 and 3 is also not attachable…..”

Military personnel died in accident. Is accident benefit payable?

'A' was a young officer of the Indian Army. While he was standing in front of his tent on the border on the Indian side a shell exploded on the Pakistani side and a splinter flew and passed through his neck and he died. It was peace time. The insurer declined to pay the accident claim, while he admitted the basic claim for sum assured, on the ground that the policyholder was in the employment of the army and was on duty. The insurer based his argument on the exclusion clause of accident benefit.

Read the exclusion clause again and again. You will find that the exclusion “arise from employment of the life assured in the armed forces or military service of a country at war (whether war is declared or not) or from being engaged in police duty in any military, naval or police organization”.

 Please note the exclusion does not arise from employment of the life assured in the armed forces. Exclusion pertains to personnel engaged in the armed forces of a country at war (whether war is declared or not). When the incident took place it was peace time and the life assured was not engaged in the “armed forces of a country at war”.

The insurer welcomed the interpretation and admitted the accident claim.

To earmark your policy moneys to a specific person

Nomination is not the answer. Nominee has no right on policy money. It belongs to legal heirs of the policyholder. If you absolutely assign your policy to (for example) your daughter she becomes the owner of the policy from the moment you put your signature on the assignment and get it witnessed. You have no role thereafter.

But you can conditionally assign the policy to your daughter in which case you continue to be the owner of the policy  as long as you are alive and you can get all the benefits under the policy including maturity claim. However the moment you die the daughter becomes the owner of policy moneys. No one else has any right on the policy moneys.

So the best way to earmark the policy moneys (on one’s death) to a specific beneficiary is to conditionally assign the policy to him/her.

Key words:
Life insurance
Nomination
Absolute assignment
Conditional assignment

See whether your name is written correctly in the policy?

                           

Name is your identity. If it is written wrongly your identity is in question. Mistake can happen (i) if your representative who filled the proposal form wrote your name wrongly (ii) the company employee while entering the data into the computer entered the name wrongly (iii) a man who wanted to go for employment to one of the gulf countries wrote his name as ‘Ibrahim’ instead of ‘Abraham’ while applying for the Passport  and copy of the passport was given as identity and address proof (iv) on marriage some ladies add their husband’s surname or name to their own (v) on marriage customarily wife’s name is changed and a new name is assigned to her in some parts of India.

Any mistake in the policy shall be got corrected immediately when the policy reaches you. This is prominently shown in the policy bond.

Wherever there is a change of name make it authentic with appropriate declaration / affidavit / Gazette notification and incorporate the same in your policy records.

Otherwise you will find it difficult to encash the cheques received from the insurance office or insurance office will find it difficult to make remittances to your bank account. Moreover in case of death, the death certificate will carry the correct name    and the insurer will not make payment of death claim to a wrong person.

Key words:

Life insurance
Policcy bond
Mistake of name
Correction in name

Copy of proposal

Do you have copies of your past life insurance proposals with you?

 If you do not have with you copies of your past proposal papers many of the statements you make in future proposals will differ from those in the past proposals. The reason is you are giving many details from memory and many times some one else fills the proposal and you put your signature on the proposal. Please remember when you put your signature you are accepting whatever is stated in the proposal.

Your attention is invited to Section 51 of the Insurance Act, 1938 (of India), which deals with Supply of copies of proposals and medical reports: “Every insurer shall, on application by a policy- holder and on payment of a fee not exceeding one rupee, supply to the policy-holder certified copies of the questions put to him and his answers thereto contained in his proposal for insurance and in the medical report supplied in connection therewith.”

From government / government companies one can get copies of documents under Right to Information Act also.  It is always advisable to collect copies of past proposals from your insurer and keep them with you.

Key words:

Life insurance
Copy of proposal
Insurance Act, 1938
Right to Infoormation Act