Assignment of insurance policies and claims | Practical Law
Assignment of insurance policies and claims
Practical law uk practice note w-031-6021 (approx. 19 pages).
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What is an assignment of benefits agreement?
How does assignment of benefits work.
- Assignment of benefits example
Assignment of benefits for homeowners
Assignment of benefits in healthcare, pros and cons of an aob agreement, canceling an aob agreement, the bottom line, an assignment of benefits contract lets someone else bill an insurance provider on your behalf.
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- An assignment of benefits is a contract that lets a service provider bill your insurance company directly.
- These agreements are often used in industries like healthcare and home repair.
- Assigning your benefits to someone else can streamline payments, but may increase fraud risk.
When you obtain insurance, whether for your health or your home , you're probably thinking about what the coverage will pay for, not how the payments will be made.
Policyholders who sign an assignment of benefits agreement allow their insurance benefits to go directly to the service provider. Usually, this eliminates the headache of dealing with an insurance company's claims department. But it can also open you up to potential fraud.
An assignment of benefits (AOB) agreement is a contract that a policyholder signs to allow a third party to receive their insurance benefits.
"An assignment of benefits is designating who's going to receive the payment that the insurance company issues after a claim is received," explains Lauren Winans, chief executive officer and principal HR consultant at Next Level Benefits , an HR consulting firm that helps companies navigate employee benefits including insurance.
Without an AOB agreement in place, the policyholder would pay the other party out of their own pocket, then file a claim with their insurance company to get reimbursed.
For example, if you go to a doctor, you might sign an AOB agreement so that their billing department can deal with the insurance provider directly. Ideally, that would prevent you from having to get involved with the claims department at your insurance company.
That said, there can still be circumstances where you have to get involved, even with an assignment of benefits agreement — for example, if you owe the difference between what your doctor charges and what the insurer pays.
These AOB agreements can vary depending on factors like the type of insurance policy, the provider, and state laws. In some cases, an AOB happens automatically. If you go to an in-network doctor, they're under contract with that insurance company. That contract states that the provider will handle billing and receive payment directly from the insurance company, Winans says. But with out-of-network providers you might sign an AOB agreement as part of standard check-in paperwork. That way the doctor can still receive at least some payment directly from the insurance company, and then bill you for the remainder.
Similarly, with property insurance, a contractor or other type of service professional might ask you to sign an assignment of benefits for repair work. When that happens, the service provider would be able to file a claim on your behalf and receive reimbursement from the insurance company.
The exact terms of an AOB agreement vary based on who's asking you to sign. Some agreements might be specific to one type of repair or project, whereas others might cover several. Some agreements go beyond an assignment of benefits and give the contractor full power of attorney rights, says Angel Conlin, chief insurance officer at Kin Insurance , a home insurance provider. Insurers can also differ in how they handle these agreements. A 2019 Florida law, for example, enables insurers to offer policies that restrict the right to use an assignment of benefits agreement, as long as the policy is offered at a discount. Conlin says Kin Insurance policyholders who waive their assignment of benefits right save an average of 5% on their policy. "The good news is they get a discount for giving up a right they probably never knew they had and never really want to use," she says.
For homeowners' insurance, an AOB agreement could be used if a contractor wants to get paid directly from the insurer. In many cases, says Conlin, that happens in a high-pressure situation.
"You discover that there's a water leak and your house is flooding. So you quickly call the fastest place you can find," she says. "Then you're standing there with some papers on a clipboard in front of you to sign so they can start sucking the water out. Oftentimes, there's an assignment of benefits included in there."
In healthcare, an AOB agreement might be used to pay a medical professional that you don't necessarily choose, like an anesthesiologist, Winans says. You may have chosen a surgeon, but the anesthesiologist that gets assigned to you the day of the surgery might bill separately. So, you might be asked to sign an assignment of benefits when you check in. "You're essentially signing that anyone who sees me today can accept payment directly from the insurance company, it doesn't have to go through me as the patient," Winans adds.
An AOB agreement can make the claims and payment processes easier at times, but there are also some downsides to note. Much depends on the situation, so consider factors like what your insurer allows and what the service provider is specifically asking for.
Here are some general pros and cons to consider:
Even though an AOB agreement can streamline the claims and payment processes, there can be downsides that come with transferring benefits to another party, particularly with property insurance. "Because they now stand in the shoes of the insured, they can do everything without asking the insured's permission," Conlin says. For example, a vendor could inflate a claim and commit fraud, she says, causing the claim to get denied and leaving the homeowner unable to get their home repaired. Or, the vendor could sue the insurance company on your behalf for payment on an inflated claim. "So then the insured doesn't have any idea that all of a sudden they have a lawsuit on their record," Conlin adds.
In Florida, these types of lawsuits became an issue due to a state law that helped contractors get attorney's fees paid for by the insurance company. That incentivized some attorneys to work with contractors to obtain AOB agreements and then sue insurers. "That way, the vendor gets to inflate the amount they're demanding, and the attorney gets attorney's fees. So it was this sort of symbiotic partnership between them," Conlin says. A 2022 Florida law removed this allowance, but contractors are trying to fight it in court .
Depending on the circumstances, including laws where you live, policyholders might have some flexibility to cancel an assignment of benefits agreement. For example, in Florida, homeowners have at least 14 days to back out of an agreement without any penalties.
Once the grace period passes, there isn't much recourse. For example, a vendor might file a lawsuit long after the period passes where you can rescind the agreement. In that case, the assignment of benefits agreement stands.
An AOB agreement can make it easy for you to receive insurance benefits without dealing with the claims department at your insurance company. But not all agreements look the same, so read carefully before signing. In some cases, like healthcare, the agreement could work well for all parties. But in other cases, such as home repairs, it might be benefitting the vendor more than the policyholder. If you're unsure about what an assignment of benefits agreement means for you, consider talking to a professional. Your insurer should be able to explain what's allowed in your situation, and external experts, like an attorney, might help you make a more informed decision.
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What is an Assignee on a Life Insurance Policy?
When people take out a life insurance policy, it’s typically a step taken to prepare your loved ones for life after you pass away. What you may not know is that insurance policies are owned entities, which means they can be used as collateral for a loan or even be sold to offer money to you when you’re in a tough spot. There are also different methods available to do this, which we’ll explain in this article.
An individual who is taking out insurance will have many choices, such as whether you prefer to purchase whole life insurance or term life insurance . You also have choices when it comes to using your policy to leverage money that has already been invested in it.
Part of that is understanding the difference between a collateral assignment and an absolute assignment, so you can be sure to choose the solution that works best with your financial needs. The other part of it involves knowing the most important terms related to an assignment so that you go in with the knowledge you need.
Collateral Assignment of Life Insurance
If you have ever taken out a standard personal loan, a collateral assignment of life insurance has a lot of similarities to that process. The collateral for the loan is the life insurance policy and an organization or individual who pays out the loan is the assignee . They are also the ones who take over the policy on a conditional basis.
One important thing to know is that the assignee cannot resell the policy, make use of its cash value, or make changes to it. The assignee may only take the money for the death benefit if you, as the policyholder, default on the loan.
In the typical situation, if the collateral assignment is standing at your death, the assignee will let the insurance company know about the debt remaining, including interest. They will then be provided with that amount. If there are extra benefits, those will go to your beneficiary listed in the policy.
Absolute Assignment of Life Insurance
Another way to acquire a loan using life insurance is through an absolute assignment. This differs from collateral assignment since instead of using the loan as collateral, you are signing the full policy over to a person or entity. This person or business is considered the assignee, while the person who is selling the policy is the assignor.
The individual who buys the insurance policy gains ownership of the policy. This makes them responsible for the premiums and lets them make changes or choose different beneficiaries .
Each absolute assignment will have different terms based on the contract that is signed. For instance, it might explain that the assignor is transferring all title, rights, and interest in the policy to the assignee. Depending on the insurance company, an ownership clause may be used to make the transfer itself.
Understanding Policy Provisions
To ensure the assignee is protected, the insurance company needs to be notified that an assignment is in place. If the company doesn’t have notice of the assignment, the process might be paid to a beneficiary or a different assignee. This can be an issue since the insurance company will not pay the amount out again to another person.
Many life insurance policies come with policy provisions related to assignments. The most common include:
- The assignment is subject to all indebtedness related to the insurance company regarding the policy.
- The assignment only becomes binding when the original or duplicate is filed at the insurance company’s home office.
- The insurance provider has no responsibility for the sufficiency, effect, or the validity of the assignment.
Because of these provisions, it’s crucial to ensure that you make the assignment correctly. This applies whether it is an absolute assignment or a collateral assignment. The best thing you can do to avoid problems is to speak with an experienced insurance professional who can guide you to the best solution for your needs.
Comparing Assignments Among Life Insurance Policies
If you are in a situation where you need money and it needs to happen quickly, ask yourself whether your cash value in your life insurance policy could help you out. After you decide the answer to that, make sure that you consider the larger picture.
Going with an absolute assignment approach may be able to offer you a large sum of money at one time. However, you also need to realize that your family and loved ones will no longer have the protection that was provided by the policy. If this is a policy that you have been dutifully paying into for decades, losing all the value is something you need to decide whether you’re ready for.
On the other hand, a collateral assignment doesn’t whisk away the policy in its entirety. You can get control of your policy back as soon as you resolve your financial problem and pay back the loan. A collateral assignment is one of the most common ways to borrow from a life insurance policy to use the cash value on necessities.
Collateral assignments let you regain the benefits associated with a long-term life insurance policy at some point in the future. Since most people are familiar with paying off student loans, auto loans, and mortgages, this agreement is similar. Making all of the payments on time can help with both financial concerns in the present as well as creating long-term financial success.
Selecting Between Life Insurance Assignment Options
Every person is unique and will be in a different situation when considering a life insurance assignment. For one person, choosing a collateral assignment might be the right choice since the individual wants the life insurance benefits back after paying off the loan. Someone else may not be interested in those benefits and need a larger amount of money, which an absolute assignment can offer.
You’ll want to consider all your options before borrowing through your life insurance , whether that involves an assignment or another type of loan. Be aware of all of your options and make sure your choice is right for the present and your future financial situation.
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What Is a Life Insurance Assignment?
- 1. What Is the Collateral Assignment of a Life Insurance Policy?
- 2. What Is the Assignment of Insurance Benefits?
- 3. Absolute Assignment of Life Insurance Policies
Although the basic element of a life insurance policy is financial security protection in the event of a premature death, the variety of products available in the marketplace provides you with many financial planning options. A life insurance assignment is a document that allows you to transfer the ownership rights of your policy to a third party, transferring to that third party all rights of ownership under your policy, including the rights to make decisions regarding coverage, beneficiary and investment options. The two kinds of life insurance assignments are conditional and absolute.
With a conditional assignment, although you transfer your life insurance policy’s ownership rights to another party, the assignment stipulates that if a certain specified event occurs, the assignment can be suspended or revoked in whole or in part. The event in question cannot be something that you can cause to happen. If you assigned your life insurance policy to a business partner, for example, with the explicit agreement that on the death of that business partner the assignment is revoked, that assignment is deemed conditional.
When you make an absolute assignment, the rights, title and interest in the life insurance policy pass on to another party without the possibility of reversal. The assignment provides security to the assignee in that you can no longer make decisions regarding the policy that would jeopardize it, such as taking out a policy loan or withdrawing cash values.
If you own a business, and you wish to take out a loan for your business, the lender may require you to purchase life insurance on your own life as security for the loan. Initially you make the request for the insurance. Once the policy is approved and issued, you make an assignment to the bank. The bank now controls the decisions and can make changes to the policy, including naming itself as beneficiary.
If you own a life insurance policy with cash values, you might wish to access those cash values to increase your income flow. Withdrawals from life insurance policy cash values can result in taxes due and might reduce your death benefit. An alternative is to assign the life insurance policy to a lender in exchange for a line of credit or regular loan payments. These loans are generally not taxable, and you can typically borrow up to a stated maximum percentage of the cash value. Since the policy is assigned to the bank, your failure to pay the premiums on the policy will cause the bank to call the loan, cancel the insurance policy and use the cash values as payment of the loan. If you maintain the policy in force until your death, the bank is generally the beneficiary of the tax-free policy proceeds up to and including the outstanding amount of the loan, with any remaining policy proceeds paid tax free to your named beneficiary.
- AXA Life: Know Your Insurance
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.
What is the collateral assignment of a life insurance policy, what is the assignment of insurance benefits, absolute assignment of life insurance policies, is mortgage insurance better than life insurance to pay off a mortgage upon death, tapping the cash in life insurance, how does renewing a loan work, tax on withdrawal from life insurance, is life insurance taxed at payout, boat financing tips for consumers, how long can co-signers stay on a mortgage loan, cancelling whole life insurance, how much can i borrow against cash value.
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What Is Collateral Assignment (of a Life Insurance Policy)?
Meredith Mangan is a senior editor for The Balance, focusing on insurance product reviews. She brings to the job 15 years of experience in finance, media, and financial markets. Prior to her editing career, Meredith was a licensed financial advisor and a licensed insurance agent in accident and health, variable, and life contracts. Meredith also spent five years as the managing editor for Money Crashers.
Definition and Examples of Collateral Assignment
How collateral assignment works, alternatives to collateral assignment.
Kilito Chan / Getty Images
If you assign your life insurance contract as collateral for a loan, you give the lender the right to collect from the policy’s cash value or death benefit in two circumstances. One is if you stop making payments; the other is if you die before the loan is repaid. Securing a loan with life insurance reduces the lender’s risk, which improves your chances of qualifying for the loan.
Before moving forward with a collateral assignment, learn how the process works, how it impacts your policy, and possible alternatives.
Collateral assignment is the practice of using a life insurance policy as collateral for a loan . Collateral is any asset that your lender can take if you default on the loan.
For example, you might apply for a $25,000 loan to start a business. But your lender is unwilling to approve the loan without sufficient collateral. If you have a permanent life insurance policy with a cash value of $40,000 and a death benefit of $300,000, you could use that life insurance policy to collateralize the loan. Via collateral assignment of your policy, you authorize the insurance company to give the lender the amount you owe if you’re unable to keep up with payments (or if you die before repaying the loan).
Lenders have two ways to collect under a collateral assignment arrangement:
- If you die, the lender gets a portion of the death benefit—up to your remaining loan balance.
- With permanent insurance policies, the lender can surrender your life insurance policy in order to access the cash value if you stop making payments.
Lenders are only entitled to the amount you owe, and are not generally named as beneficiaries on the policy. If your cash value or the death benefit exceeds your outstanding loan balance, the remaining money belongs to you or your beneficiaries.
Whenever lenders approve a loan, they can’t be certain that you’ll repay. Your credit history is an indicator, but sometimes lenders want additional security. Plus, surprises happen, and even those with the strongest credit profiles can die unexpectedly.
Assigning a life insurance policy as collateral gives lenders yet another way to secure their interests and can make approval easier for borrowers.
Types of Life Insurance Collateral
Life insurance falls into two broad categories: permanent insurance and term insurance . You can use both types of insurance for a collateral assignment, but lenders may prefer that you use permanent insurance.
- Permanent insurance : Permanent insurance, such as universal and whole life insurance, is lifelong insurance coverage that contains a cash value. If you default on the loan, lenders can surrender your policy and use that cash value to pay down the balance. If you die, the lender has a right to the death benefit, up to the amount you still owe.
- Term insurance : Term insurance provides a death benefit, but coverage is limited to a certain number of years (20 or 30, for example). Since there’s no cash value in these policies, they only protect your lender if you die before the debt is repaid. The duration of a term policy used as collateral needs to be at least as long as your loan term.
A Note on Annuities
You may also be able to use an annuity as collateral for a bank loan. The process is similar to using a life insurance policy, but there is one key difference to be aware of. Any amount assigned as collateral in an annuity is treated as a distribution for tax purposes. In other words, the amount assigned will be taxed as income up to the amount of any gain in the contract, and may be subject to an additional 10% tax if you’re under 59 ½.
A collateral assignment is similar to a lien on your home . Somebody else has a financial interest in your property, but you keep ownership of it.
To use life insurance as collateral, the lender must be willing to accept a collateral assignment. When that’s the case, the policy owner, or “assignor,” submits a form to the insurance company to establish the arrangement. That form includes information about the lender, or “assignee,” and details about the lender’s and borrower’s rights.
Policy owners generally have control over policies. They may cancel or surrender coverage, change beneficiaries, or assign the contract as collateral. But if the policy has an irrevocable beneficiary, that beneficiary will need to approve any collateral assignment.
State laws typically require you to notify the insurer that you intend to pledge your insurance policy as collateral, and you must do so in writing. In practice, most insurers have specific forms that detail the terms of your assignment.
Some lenders might require you to get a new policy to secure a loan, but others allow you to add a collateral assignment to an existing policy. After submitting your form, it can take 24 to 48 hours for the assignment to go into effect.
Lenders Get Paid First
If you die and the policy pays a death benefit , the lender receives the amount you owe first. Your beneficiaries get any remaining funds once the lender is paid. In other words, your lender takes priority over your beneficiaries when you use this strategy. Be sure to consider the impact on your beneficiaries before you complete a collateral assignment.
After you repay your loan, your lender does not have any right to your life insurance policy, and you can request that the lender release the assignment. Your life insurance company should have a form for that. However, if a lender pays premiums to keep your policy in force, the lender may add those premium payments (plus interest) to your total debt—and collect that extra money.
There may be several other ways for you to get approved for a loan—with or without life insurance:
- Surrender a policy : If you have a cash value life insurance policy that you no longer need, you could potentially surrender the policy and use the cash value. Doing so might prevent the need to borrow, or you might borrow substantially less. However, surrendering a policy ends your coverage, meaning your beneficiaries will not get a death benefit. Also, you’ll likely owe taxes on any gains.
- Borrow from your policy : You may be able to borrow against the cash value in your permanent life insurance policy to get the funds you need. This approach could eliminate the need to work with a traditional lender, and creditworthiness would not be an issue. But borrowing can be risky, as any unpaid loan balance reduces the amount your beneficiaries receive. Plus, over time, deductions for the cost of insurance and compounding loan interest may negate your cash value and the policy could lapse, so it’s critical to monitor.
- Consider other solutions : You may have other options unrelated to a life insurance policy. For example, you could use the equity in your home as collateral for a loan, but you could lose your home in foreclosure if you can’t make the payments. A co-signer could also help you qualify, although the co-signer takes a significant risk by guaranteeing your loan.
- Life insurance can help you get approved for a loan when you use a collateral assignment.
- If you die, your lender receives the amount you owe, and your beneficiaries get any remaining death benefit.
- With permanent insurance, your lender can cash out your policy to pay down your loan balance.
- An annuity can be used as collateral for a loan but may not be a good idea because of tax consequences.
- Other strategies can help you get approved without putting your life insurance coverage at risk.
NYSBA. " Life Insurance and Annuity Contracts Within and Without Tax Qualified Retirement Plans and Life Insurance Trusts ." Accessed April 12, 2021.
IRS. " Publication 575 (2020), Pension and Annuity Income ." Accessed April 12, 2021.
Practical Law. " Security Interests: Life Insurance Policies ." Accessed April 12, 2021.
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Assignment under Insurance Policies
By J Mandakini, NUALS
Editor’s Note: This paper attempts to explore the concept of assignment under Indian law especially Contract Act, Insurance Act and Transfer of Property Act. It seeks to appreciate why the assignment is made use of for securities of a facility sanctioned by ICICI Bank. Also, it explains how ICICI Bank faces certain problems in executing the same.
For any facility sanctioned by a lender, collateral is always deposited to secure the same. Such mere deposition will not suffice, the borrower has to explicitly permit the lender to recover from the borrower, such securities in case of his default.
This is done by the concept of assignment, dealt with adequately in Indian law. Assignment of obligations is always a tricky matter and needs to be dealt with carefully. The Bank should not fall short of any legally permitted lengths to ensure the same. This is why ambiguity in its security documents have to be rectified.
This paper attempts to explore the concept of assignment in contract law. It seeks to appreciate why the assignment is made use of for securities of a facility sanctioned by ICICI Bank. The next section will deal with how ICICI Bank faces certain problems in executing the same. The following sections will talk about possible risks involved, as well as defenses and solutions to the same.
WHAT IS ASSIGNMENT?
Assignment refers to the transfer of certain or all (depending on the agreement) rights to another party. The party which transfers its rights is called an assignor, and the party to whom such rights are transferred is called an assignee. Assignment only takes place after the original contract has been made. As a general rule, assignment of rights and benefits under a contract may be done freely, but the assignment of liabilities and obligations may not be done without the consent of the original contracting party.
The liability on a contract cannot be transferred so as to discharge the person or estate of the original contractor unless the creditor agrees to accept the liability of another person instead of the first. [i]
P agrees to sell his car to Q for Rs. 100. P assigns the right to receive the Rs. 100 to S. This may be done without the consent of Q. This is because Q is receiving his car, and it does not particularly matter to him, to whom the Rs. 100 is being handed as long as he is being absolved of his liability under the contract. However, notice may still be required to be given. Without such notice, Q would pay P, in spite of the fact that such right has been assigned to S. S would be a sufferer in such case.
In this case, that condition is being fulfilled since P has assigned his right to S. However, P may not assign S to be the seller. P cannot just transfer his duties under the contract to another. This is because Q has no guarantee as to the condition of S’s car. P entered into the contract with Q on the basis of the merits of P’s car, or any other personal qualifications of P. Such assignment may be done with the consent of all three parties – P, Q, S, and by doing this, P is absolved of his liabilities under the contract.
1.1. Effect of Assignment
Immediately on the execution of an assignment of an insurance policy, the assignor forgoes all his rights, title and interest in the policy to the assignee. The premium or loan interest notices etc. in such cases will be sent to the assignee. [ii] However, the existence of obligations must not be assumed, when it comes to the assignment. It must be accompanied by evidence of the same. The party asserting such a personal obligation must prove the existence of an express assumption by clear and unequivocal proof. [iii]
Assignment of a contract to a third party destroys the privity of contract between the initial contracting parties. New privity is created between the assignee and the original contracting party. In the illustration mentioned above, the original contracting parties were P and Q. After the assignment, the new contracting parties are Q and S.
1.2. Revocation of Assignment
Assignment, once validly executed, can neither be revoked nor canceled at the option of the assignor. To do so, the insurance policy will have to be reassigned to the original assignor (the insured).
1.3. Exceptions to Assignment
There are some instances where the contract cannot be assigned to another.
- Express provisions in the contract as to its non-assignability – Some contracts may include a specific clause prohibiting assignment. If that is so, then such a contract cannot be assigned. Assignability is the rule and the contrary is an exception. [iv]
Pensions, PFs, military benefits etc. Illustration
1.4. enforcing a contract of assignment.
From the day on which notice is given to the insurer, the assignee becomes the beneficiary of the policy even though the assignment is not registered immediately. It does not wait until the giving of notice of the transfer to the insurer. [vi] However, no claims may lie against the insurer until and unless notice of such assignment is delivered to the insurer.
If notice of assignment is not provided to the obligor, he is discharged if he pays to the assignor. Assignee would have to recover from the assignor. However, if the obligor pays the assignor in spite of the notice provided to him, he would still be liable to the assignee.
The following two illustrations make the point amply clear:
1. Seller A assigns its right to payment from buyer X to bank B. Neither A nor B gives notice to X. When payment is due, X pays A. This payment is fully valid and X is discharged. It will be up to B to recover it from A
2. Seller A assigns to bank B its right to payment from buyer X. B immediately gives notice of the assignment to X. When payment is due, X still pays A. X is not discharged and B is entitled to oblige X to pay a second time.
An assignee doesn’t stand in better shoes than those of his assignor. Thus, if there is any breach of contract by the obligor to the assignee, the latter can recover from the former only the same amount as restricted by counter claims, set offs or liens of the assignor to the obligor.
The acknowledgment of notice of assignment is conclusive proof of, and evidence enough to entertain a suit against an assignor and the insurer respectively who haven’t honoured the contract of assignment.
1.5. Assignment under various laws in India
There is no separate law in India which deals with the concept of assignment. Instead, several laws have codified it under different laws. Some of them have been discussed as follows:
1.5.1. Under the Indian Contract Act
There is no express provision for the assignment of contracts under the Indian Contract Act. Section 37 of the Act provides for the duty of parties of a contract to honour such contract (unless the need for the same has been done away with). This is how the Act attempts to introduce the concept of assignment into Indian commercial law. It lays down a general responsibility on the “representatives” of any parties to a contract that may have expired before the completion of the contract. (Illustrations to Section 37 in the Act).
An exception to this may be found from the contract, e.g. contracts of a personal nature. Representatives of a deceased party to a contract cannot claim privity to that contract while refusing to honour such contract. Under this Section, “representatives” would also include within its ambit, transferees and assignees. [vii]
Section 41 of the Indian Contract Act applies to cases where a contract is performed by a third party and not the original parties to the contract. It applies to cases of assignment. [viii] A promisee accepting performance of the promise from a third person cannot afterwards enforce it against the promisor. [ix] He cannot attain double satisfaction of its claim, i.e., from the promisor as well as the third party which performed the contract. An essential condition for the invocation of this Section is that there must be actual performance of the contract and not of a substituted promise.
1.5.2. Under the Insurance Act
The creation of assignment of life insurance policies is provided for, under Section 38 of the Insurance Act, 1938.
- When the insurer receives the endorsement or notice, the fact of assignment shall be recorded with all details (date of receipt of notice – also used to prioritise simultaneous claims, the name of assignee etc). Upon request, and for a fee of an amount not exceeding Re. 1, the insurer shall grant a written acknowledgment of the receipt of such assignment, thereby conclusively proving the fact of his receipt of the notice or endorsement. Now, the insurer shall recognize only the assignee as the legally valid party entitled to the insurance policy.
1.5.3. Under the Transfer of Property Act
Indian law as to assignment of life policies before the Insurance Act, 1938 was governed by Sections 130, 131, 132 and 135 of the Transfer of Property Act 1882 under Chapter VIII of the Act – Of Transfers of Actionable Claims. Section 130 of the Transfer of Property Act states that nothing contained in that Section is to affect Section 38 of the Insurance Act.
I) Section 130 of the Transfer of Property Act
An actionable claim may be transferred only by fulfilling the following steps:
- Signed by a transferor (or his authorized agent)
The transfer will be complete and effectual as soon as such an instrument is executed. No particular form or language has been prescribed for the transfer. It does not depend on giving notice to the debtor.
The proviso in the section protects a debtor (or other person), who, without knowledge of the transfer pays his creditor instead of the assignee. As long as such payment was without knowledge of the transfer, such payment will be a valid discharge against the transferee. When the transfer of any actionable claim is validly complete, all rights and remedies of transferor would vest now in the transferee. Existence of an instrument in writing is a sine qua non of a valid transfer of an actionable claim. [x]
II) Section 131 of the Transfer Of Property Act
This Section requires the notice of transfer of actionable claim, as sent to the debtor, to be signed by the transferor (or by his authorized agent), and if he refuses to sign it, a signature by the transferee (or by his authorized agent). Such notice must state both the name and address of the transferee. This Section is intended to protect the transferee, to receive from the debtor. The transfer does not bind a debtor unless the transferor (or transferee, if transferor refuses) sends him an express notice, in accordance with the provisions of this Section.
III) Section 132 of the Transfer Of Property Act
This Section addresses the issue as to who should undertake the obligations under the transfer, i.e., who will discharge the liabilities of the transferor when the transfer has been made complete – would it be the transferor himself or the transferee, to whom the rest of the surviving contract, so to speak, has been transferred.
This Section stipulates, that the transferee himself would fulfill such obligations. However, where an actionable claim is transferred with the stipulation in the contract that transferor himself should discharge the liability, then such a provision in the contract will supersede Ss 130 and 132 of this Act. Where the insured hypothecates his life insurance policies and stipulates that he himself would pay the premiums, the transferee is not bound to pay the premiums. [xi]
FACILITIES SECURED BY INSURANCE POLICIES – HOW ASSIGNMENT COMES INTO THE PICTURE
Many banks require the borrower to take out or deposit an insurance policy as security when they request a personal loan or a business loan from that institution. The policy is used as a way of securing the loan, ensuring that the bank will have the facility repaid in the event of either the borrower’s death or his deviations from the terms of the facility agreement.
Along with the deposit of the insurance policy, the policyholder will also have to assign the benefits of the policy to the financial institution from which he proposes to avail a facility. The mere deposit, without writing, or passing of any document of title to such a claim, does not create any equitable charge. [xii]
ETHICS OF ASSIGNING LIFE INSURANCE POLICY TO LENDERS
The purpose of taking out a life insurance policy on oneself, is that in the event of an untimely death, near and dear ones of the deceased are not left high and dry, and that they would have something to fall back on during such traumatic times. Depositing and assigning the rights under such policy document to another, would mean that there is a high chance that benefits of life insurance would vest in such other, in the event of unfortunate death and the family members are prioritized only second. These are not desirable circumstances where the family would be forced to cope with the death of their loved one coupled with the financial crisis.
Thus, there is a need to examine the ethics of:
- The bank accepting such assignment
The customer should be cautious before assigning his rights under life insurance policies. By “cautious”, it is only meant that he and his dependents and/or legal heirs should be aware of the repercussions of the act of assigning his life insurance policy. It is conceded that no law prohibits the assignment of life insurance policies.
In fact, Section 38 of the Insurance Act, 1938 , provides for such assignments. Judicial cases have held life insurance policies as property more than a social welfare measure. [xiii] Further, the bank has no personal relationship with any customer and thus has no moral obligation to not accept such assignments of life insurance.
However, the writer is of the opinion that, in dealing with the assignment of life insurance policies, utmost care and caution must be taken by the insured when assigning his life insurance policy to anyone else.
CURRENT STAND OF ICICI REGARDING FACILITIES SECURED BY INSURANCE POLICY, WITH SPECIFIC REFERENCE TO ASSIGNMENT OF OBLIGATIONS
This Section seeks to address and highlight the manner in which ICICI Bank drafts its security documents with regard to the assignment of obligations. The texts placed in quotes in the subsequent paragraphs are verbatim extracts from the security document as mentioned.
Composite Document for Corporate and Realty Funding
“ 8 . CHARGING CLAUSE
The Mortgagor doth hereby:
iii) Assign and transfer unto the Mortgagee all the Bank Accounts and all rights, title, interest, benefits, claims and demands whatsoever of the Mortgagor in, to, under and in respect of the Bank Accounts and all monies including all cash flows and receivables and all proceeds arising from Projects and Other Projects_______________, insurance proceeds, which have been deposited / credited / lying in the Bank Accounts, all records, investments, assets, instruments and securities which represent all amounts in the Bank Accounts, both present and future (the “Account Assets”, which expression shall, as the context may permit or require, mean any or each of such Account Assets) to have and hold the same unto and to the use of the Mortgagee absolutely and subject to the powers and provisions herein contained and subject also to the proviso for redemption hereinafter mentioned;
(v) Assign and transfer unto the Mortgagee all right, title, interest, benefit, claims and demands whatsoever of the Mortgagors, in, to, under and/or in respect of the Project Documents (including insurance policies) including, without limitation, the right to compel performance thereunder, and to substitute, or to be substituted for, the Mortgagor thereunder, and to commence and conduct either in the name of the Mortgagor or in their own names or otherwise any proceedings against any persons in respect of any breach of, the Project Documents and, including without limitation, rights and benefits to all amounts owing to, or received by, the Mortgagor and all claims thereunder and all other claims of the Mortgagor under or in any proceedings against all or any such persons and together with the right to further assign any of the Project Documents, both present and future, to have and to hold all and singular the aforesaid assets, rights, properties, etc. unto and to the use of the Mortgagee absolutely and subject to the powers and provisions contained herein and subject also to the proviso for redemption hereinafter mentioned.”
ICICI Bank’s Standard Terms and Conditions Governing Consumer Durable Loans
The Borrower further agrees that upon any monies becoming due under the policy, the same shall be paid by the Insurance Company to ICICI Bank without any reference / notice to the Borrower, but not exceeding the principal amount outstanding under the Insurance Policy. The Borrower specifically acknowledges that in all cases of claim, the Insurance Company will be solely liable for settlement of the claim, and he/she will not hold ICICI Bank responsible in any manner whether for compensation, recovery of compensation, processing of claims or for any reason whatsoever.
Reference has been made only to assignment of assets, rights, benefits, interests, properties etc. No specific reference has been made to the assignment of obligations of the assignor under such insurance contract.
THE ISSUE FACED BY ICICI BANK
Where ICICI Bank accepts insurance policy documents of customers as security for a loan, in the light of the fact that the documents are silent about the question of assignment of obligations, are they assigned to ICICI Bank? Where there is hypothecation of a life insurance policy, with a stipulation that the mortgagor (assignor) should pay the premiums, and that the mortgagee (assignee) is not bound to pay the same, Sections 130 and 132 do not apply to such cases. [xiv] With rectification of this issue, ICICI Bank can concretize its hold over the securities with no reservations about its legality.
This section of the paper attempts to explore the many risks that ICICI Bank is exposed to, or other factors which worsen the situation, due to the omission of a clause detailing the assignment of obligations by ICICI Bank.
Practices of Other Companies
The practices of other companies could be a risk factor for ICICI Bank in the light of the fact that some of them expressly exclude assignment of obligations in their security documents.
There are some companies whose notice of assignment forms contain an exclusive clause dealing with the assignment of obligations. It states that while rights and benefits accruing out of the insurance policy are to be assigned to the bank, obligations which arise out of such policy documents will not be liable to be performed by the bank. Thus, they explicitly provide for the only assignment of rights and benefits and never the assignment of obligations.
Possible Obligation to Insurance Companies
By not clearing up this issue, ICICI Bank could be held to be obligated to the insurance company from whom the assignor took the policy, for example, with respect to insurance premiums which were required to be paid by the assignor. This is not a desirable scenario for ICICI Bank. In case of default by the assignor in the terms of the contract, the right of ICICI Bank over the security deposited (insurance policy in question) could be fraught in the legal dispute.
Numerous suits may be instituted against ICICI Bank alleging a violation of the Indian Contract Act. Some examples include allegations of concealment of fact, fraud etc. These could be enough to render the existing contract of assignment voidable or even void.
This doctrine applies in a situation when a provision in the contract can be interpreted in more than one way, thereby creating ambiguities. It attempts to provide a solution to interpreting vague terms by laying down, that a party which drafts and imposes an ambiguous term should not benefit from that ambiguity. Where there is any doubt or ambiguity in the words of an exclusion clause, the words are construed more forcibly against the party putting forth the document, and in favour of the other party. [xv]
The doctrine of contra proferentem attempts to protect the layman from the legally knowledgeable companies which draft standard forms of contracts, in which the former stands on a much weaker footing with regard to bargaining power with the latter. This doctrine has been used in interpreting insurance contracts in India. [xvi]
If litigation ensues as a result of this uncertainty, there are high chances that the Courts will tend to favour the assignor and not the drafter of the documents.
POSSIBLE DEFENSES AGAINST DISPUTES FOR THE SECURITY DOCUMENTS AS THEY ARE NOW
This section of the paper attempts to give defences which the Bank may raise in case of any disputes arising out of silence on the matter of assignability of obligations.
Interpretation of the Security Documents
UNIDROIT principles expressly provide a method for interpretation of contracts. [xvii] The method consists of utilizing the following factors:
This defence relates to the concept of estoppel embodied in Section 115 of the Indian Evidence Act, 1872. According to the Section, when one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representatives, to deny the truth of that thing.
If a man either by words or by conduct has intimated that he consents to an act which has been done and that he will not offer any opposition to it, and he thereby induces others to do that which they otherwise might have abstained from, he cannot question legality of the act he had sanctioned to the prejudice of those who have so given faith to his words or to the fair inference to be drawn from his conduct. [xviii] Subsequent conduct may be relevant to show that the contract exists, or to show variation in the terms of the contract, or waiver, or estoppel. [xix]
Where the meaning of the instrument is ambiguous, a statement subsequently interpreting such instrument is admissible. [xx] In the present case, where the borrower has never raised any claims with regard to non assignability of obligations on him, and has consented to the present conditions and relations with ICICI Bank, he cannot he cannot be allowed to raise any claims with respect to the same.
Internationally, the doctrine of post contractual conduct is invoked for such disputes. It refers to the acts of parties to a contract after the commencement of the contract. It stipulates that where a party has behaved in a particular manner, so as to induce the other party to discharge its obligations, even if there has been a variation from the terms of the contract, the first party cannot cite such variation as a reason for its breach of the contract.
Where the parties to a contract are both under a common mistake as to the meaning or effect of it, and therefore embark on a course of dealing on the footing of that mistake, thereby replacing the original terms of the contract by a conventional basis on which they both conduct their affairs, then the original contract is replaced by the conventional basis. The parties are bound by the conventional basis. Either party can sue or be sued upon it just as if it had been expressly agreed between them. [xxi]
The importance of consensus ad idem has been concretized by various case laws in India. Further, if the stipulations and terms are uncertain and the parties are not ad idem there can be no specific performance, for there was no contract at all. [xxii]
In the present case, the minds of the assignor and assignee can be said to have not met while entering into the assignment. The assignee never had any intention of undertaking any obligations of the assignor. In Hartog v Colin & Shields, [xxiii] the defendants made an offer to the plaintiffs to sell hare skins, offering to a pay a price per pound instead of per piece.
AVOIDING THESE RISKS
To concretize ICICI Bank’s stand on the assignment of obligations in the matter of loans secured by insurance policies, the relevant security documents could be amended to include such a clause.
For instances where loans are secured by life insurance policies, a standard set by the American Banker’s Association (ABA) has been followed by many Indian commercial institutions as well. [xxvi] The ABA is a trade association in the USA representing banks ranging from the smallest community bank to the largest bank holding companies. ABA’s principal activities include lobbying, professional development for member institutions, maintenance of best practices and industry standards, consumer education, and distribution of products and services. [xxvii]
There are several ICICI security documents which have included clauses denying any assignment of obligations to it. An extract of the deed of hypothecation for vehicle loan has been reproduced below:
“ 3. In further pursuance of the Loan Terms and for the consideration aforesaid, the Hypothecator hereby further agrees, confirms, declares and undertakes with the Bank as follows:
(i)(a) The Hypothecator shall at its expenses keep the Assets in good and marketable condition and, if stipulated by the Bank under the Loan Terms, insure such of the Assets which are of insurable nature, in the joint names of the Hypothecator and the Bank against any loss or damage by theft, fire, lightning, earthquake, explosion, riot, strike, civil commotion, storm, tempest, flood, erection risk, war risk and such other risks as may be determined by the Bank and including wherever applicable, all marine, transit and other hazards incidental to the acquisition, transportation and delivery of the relevant Assets to the place of use or installation. The Hypothecator shall deliver to the Bank the relevant policies of insurance and maintain such insurance throughout the continuance of the security of these presents and deliver to the Bank the renewal receipts / endorsements / renewed policies therefore and till such insurance policies / renewal policies / endorsements are delivered to the Bank, the same shall be held by the Hypothecator in trust for the Bank. The Hypothecator shall duly and punctually pay all premia and shall not do or suffer to be done or omit to do or be done any act, which may invalidate or avoid such insurance. In default, the Bank may (but shall not be bound to) keep in good condition and render marketable the relevant Assets and take out / renew such insurance. Any premium paid by the Bank and any costs, charges and expenses incurred by the Bank shall forthwith on receipt of a notice of demand from the Bank be reimbursed by the Hypothecator and/or Borrower to the Bank together with interest thereon at the rate for further interest as specified under the Loan Terms, from the date of payment till reimbursement thereof and until such reimbursement, the same shall be a charge on the Assets…”
The inclusion of such a clause in all security documents of the Bank can avoid the problem of assignability of obligations in insurance policies used as security for any facility sanctioned by it.
An assignment of securities is of utmost importance to any lender to secure the facility, without which the lender will not be entitled to any interest in the securities so deposited.
In this paper, one has seen the need for assignment of securities of a facility. Risks involved in not having a separate clause dealing with non assignability of obligations have been discussed. Certain defences which ICICI Bank may raise in case of the dispute have also been enumerated along with solutions to the same.
Formatted by March 2nd, 2019.
[i] J.H. Tod v. Lakhmidas , 16 Bom 441, 449
[ii] http://www.licindia.in/policy_conditions.htm#12, last visited 30 th June, 2014
[iii] Headwaters Construction Co. Ltd. v National City Mortgage Co. Ltd., 720 F. Supp. 2d 1182 (D. Idaho 2010)
[iv] Indian Contract Act and Specific Relief Act, Mulla, Vol. I, 13 th Edn., Reprint 2010, p 968
[v] Khardah Co. Ltd. v. Raymond & Co ., AIR 1962 SC 1810: (1963) 3 SCR 183
[vi] Principles of Insurance Law, M.N. Srinivasan, 8 th Edn., 2006, p. 857
[vii] Ram Baran v Ram Mohit , AIR 1967 SC 744: (1967) 1 SCR 293
[viii] Sri Sarada Mills Ltd. v Union of India, AIR 1973 SC 281
[ix] Lala Kapurchand Godha v Mir Nawah Himayatali Khan,  2 SCR 168
[x] Velayudhan v Pillaiyar, 9 Mad LT 102 (Mad)
[xi] Hindustan Ideal Insurance Co. Ltd. v Satteya, AIR 1961 AP 183
[xii] Mulraj Khatau v Vishwanath, 40 IA 24 – Respondent based his claim on a mere deposit of the policy and not under a written transfer and claimed that a charge had thus been created on the policy.
[xiii] Insure Policy Plus Services (India) Pvt. Ltd. v The Life Insurance Corporation of India, 2007(109)BOMLR559
[xiv] Transfer of Property Act, Sanjiva Row, 7 th Edn., 2011, Vol II, Universal Law Publishing Company, New Delhi
[xv] Ghaziabad Development Authority v Union of India, AIR 2000 SC 2003
[xvi] United India Insurance Co. Ltd. v M/s. Pushpalaya Printers,  3 SCR 631, General Assurance Society Ltd. v Chandumull Jain & Anr., [1966 (3) SCR 500]
[xvii] UNIDROIT Principles, Art 4.3
[xviii] B.L.Sreedhar & Ors. v K.M. Munireddy & Ors., 2002 (9) SCALE 183
[xix] James Miller & Partners Ltd. v Whitworth Street Estates (Manchester) Ltd.,  1 All ER 796 (HL)
[xx] Godhra Electricity Co. Ltd. v State of Gujarat, AIR 1975 SC 32
[xxi] Amalgamated Investment & Property Co. Ltd. v Texas Commerce International Bank Ltd.,  1 All ER 923
[xxii] Smt. Mayawanti v Smt. Kaushalya Devi, 1990 SCR (2) 350
[xxiii]  3 All ER 566
[xxiv] Terrell v Alexandria Auto Co., 12 La.App. 625
[xxv] http://www.uncitral.org/pdf/english/CISG25/Pamboukis.pdf, last visited on 30 th June, 2014
[xxvi] https://www.phoenixwm.phl.com/shared/eforms/getdoc.jsp?DocId=525.pdf, last visited on 30 th June, 2014
[xxvii] http://www.aba.com/About/Pages/default.aspx, last visited on 30 th June, 2014
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The person who assigns the policy, i.e. transfers the rights, is called the Assignor and the one to whom the policy has been assigned, i.e. the person to whom the policy rights have been transferred is called the Assignee.
Assignment of a Life Insurance Policy simply means transfer of rights from one person to another.
Thus, the owner of the policy who decides to transfer the rights to someone else, is called Assignor.
Once the rights have been transferred to the Assignee, the rights of the Assignor stands cancelled and the Assignee becomes the owner of the policy. Nomination stands cancelled once the policy has been assigned. Hence the assignor’s legal heirs and nominee have no rights on the policy whatsoever. Then the Assignee becomes the owner of the policy and he may choose to transfer the policy or assign is to someone else!
Let us understand by taking an example:
Akash owns a life insurance policy of Rs 5 lacs which he wishes to assign to Bijay as a gift. Thus, Akash is the Assignor and Bijay is the Assignee. Once the policy is completely assigned to Bijay, he becomes the owner of the policy and Akash has no right on the policy anymore. Even his legal heirs and nominee cannot claim the money once the life insured dies.
Now, Bikash may choose to re-assign the policy to Chirag. In this case, Bikash is the Assignor and Chirag is the Assignee.
Thus, the owner can assign and re-assign the policy to anyone else also. The person who assigns is called the Assignor and to whom the policy rights are transferred is called the Assignee.
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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What Is Insurance?
How insurance works, insurance policy components, types of insurance, the bottom line.
- Personal Finance
Insurance: Definition, How It Works, and Main Types of Policies
Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.
Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.
Insurance is a contract, represented by a policy, in which a policyholder receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make payments more affordable for the insured. Most people have some insurance: for their car, their house, their healthcare, or their life.
Insurance policies hedge against financial losses resulting from accidents, injury, or property damage. Insurance also helps cover costs associated with liability (legal responsibility) for damage or injury caused to a third party.
- Insurance is a contract (policy) in which an insurer indemnifies another against losses from specific contingencies or perils.
- There are many types of insurance policies. Life, health, homeowners, and auto are among the most common forms of insurance.
- The core components that make up most insurance policies are the premium, deductible, and policy limits.
Investopedia / Daniel Fishel
Many insurance policy types are available, and virtually any individual or business can find an insurance company willing to insure them—for a price. Common personal insurance policy types are auto, health, homeowners, and life insurance. Most individuals in the United States have at least one of these types of insurance, and car insurance is required by state law.
Businesses obtain insurance policies for field-specific risks, For example, a fast-food restaurant's policy may cover an employee's injuries from cooking with a deep fryer. Medical malpractice insurance covers injury- or death-related liability claims resulting from the health care provider's negligence or malpractice. Businesses may be required by state law to buy specific insurance coverages.
Most insurance is regulated at the state level.
There are also insurance policies available for very specific needs, such as kidnap, ransom and extortion insurance (K&R), identity theft insurance, and wedding liability and cancellation insurance.
Understanding how insurance works can help you choose a policy. For instance, comprehensive coverage may or may not be the right type of auto insurance for you. Three components of any insurance type are the premium, policy limit, and deductible.
A policy’s premium is its price, typically a monthly cost. Often, an insurer takes multiple factors into account to set a premium. Here are a few examples:
- Auto insurance premiums : Your history of property and auto claims , age and location, creditworthiness , and many other factors that may vary by state.
- Home insurance premiums : The value of your home, personal belongings, location, claims history, and coverage amounts.
- Health insurance premiums : Age, sex, location, health status, and coverage levels.
- Life insurance premiums : Age, sex, tobacco use, health, and amount of coverage.
Much depends on the insurer's perception of your risk for a claim. For example, suppose you own several expensive automobiles and have a history of reckless driving. In that case, you will likely pay more for an auto policy than someone with a single midrange sedan and a perfect driving record. However, different insurers may charge different premiums for similar policies. So finding the price that is right for you requires some legwork.
The policy limit is the maximum amount an insurer will pay for a covered loss under a policy. Maximums may be set per period (e.g., annual or policy term), per loss or injury, or over the life of the policy, also known as the lifetime maximum.
Typically, higher limits carry higher premiums. For a general life insurance policy , the maximum amount that the insurer will pay is referred to as the face value. This is the amount paid to your beneficiary upon your death.
The federal Affordable Care Act (ACA) prevents ACA-compliant plans from instituting a lifetime limit for essential healthcare benefits such as family planning, maternity services, and pediatric care.
The deductible is a specific amount you pay out of pocket before the insurer pays a claim. Deductibles serve as deterrents to large volumes of small and insignificant claims.
For example, a $1,000 deductible means you pay the first $1,000 toward any claims. Suppose your car's damage totals $2,000. You pay the first $1,000, and your insurer pays the remaining $1,000.
Deductibles can apply per policy or claim, depending on the insurer and the type of policy. Health plans may have an individual deductible and a family deductible. Policies with high deductibles are typically less expensive because the high out-of-pocket expense generally results in fewer small claims.
There are many different types of insurance. Let’s look at the most important.
Health insurance helps covers routine and emergency medical care costs, often with the option to add vision and dental services separately. In addition to an annual deductible, you may also pay copays and coinsurance , which are your fixed payments or percentage of a covered medical benefit after meeting the deductible. However, many preventive services may be covered for free before these are met.
Health insurance may be purchased from an insurance company, an insurance agent, the federal Health Insurance Marketplace, provided by an employer, or federal Medicare and Medicaid coverage.
The federal government no longer requires Americans to have health insurance, but in some states, such as California, you may pay a tax penalty if you don't have insurance.
If you have chronic health issues or need regular medical attention, look for a health insurance policy with a lower deductible. Though the annual premium is higher than a comparable policy with a higher deductible, less-expensive medical care year-round may be worth the tradeoff.
Homeowners insurance (also known as home insurance) protects your home, other property structures, and personal possessions against natural disasters, unexpected damage, theft, and vandalism. Renter's insurance is another type of homeowners insurance.
Homeowner insurance won't cover floods or earthquakes, which you'll have to protect against separately.
Your lender or landlord will likely require you to have homeowners insurance coverage. Where homes are concerned, you don't have coverage or stop paying your insurance bill, your mortgage lender is allowed to buy homeowners insurance for you and charge you for it.
Auto insurance can help pay claims if you injure or damage someone else's property in a car accident, help pay for accident-related repairs on your vehicle, or repair or replace your vehicle if stolen, vandalized, or damaged by a natural disaster.
Instead of paying out of pocket for auto accidents and damage, people pay annual premiums to an auto insurance company. The company then pays all or most of the covered costs associated with an auto accident or other vehicle damage.
If you have a leased vehicle or borrowed money to buy a car, your lender or leasing dealership will likely require you to carry auto insurance. As with homeowners insurance, the lender may purchase insurance for you if necessary.
A life insurance policy guarantees that the insurer pays a sum of money to your beneficiaries (such as a spouse or children) if you die. In exchange, you pay premiums during your lifetime.
There are two main types of life insurance. Term life insurance covers you for a specific period, such as 10 to 20 years. If you die during that period, your beneficiaries receive a payment. Permanent life insurance covers your whole life as long as you continue paying the premiums.
Travel insurance covers the costs and losses associated with traveling, including trip cancellations or delays, coverage for emergency healthcare, injuries and evacuations, and damaged baggage, rental cars, and rental homes.
Insurance is a way to manage your financial risks. When you buy insurance, you purchase protection against unexpected financial losses. The insurance company pays you or someone you choose if something bad occurs. If you have no insurance and an accident happens, you may be responsible for all related costs.
Why Is Insurance Important?
Insurance helps protect you, your family, and your assets. An insurer will help you cover the costs of unexpected and routine medical bills or hospitalization, accident damage to your car or injury of others, and home damage or theft of your belongings. An insurance policy can even provide your survivors with a lump-sum cash payment if you die. In short, insurance can offer peace of mind regarding unforeseen financial risks.
Is Insurance an Asset?
Depending on the type of life insurance policy and how it is used, permanent or variable life insurance could be considered a financial asset because it can build cash value or be converted into cash. Simply put, most permanent life insurance policies have the ability to build cash value over time.
Insurance helps to protect you and your family against unexpected financial costs and resulting debts or the risk of losing your assets. Insurance helps protect you from expensive lawsuits, injuries and damages, death, and even total losses of your car or home.
Sometimes, your state or lender may require you to carry insurance. Although there are many insurance policy types, some of the most common are life, health, homeowners, and auto. The right type of insurance for you will depend on your goals and financial situation.
Consumer Financial Protection Bureau. “ What Is Insurance? ”
U.S. SBA. " Get Business Insurance. "
Ohio Department of Insurance. " How Insurance Rates are Determined ."
HHS.gov. " Lifetime & Annual Limits ."
Healthcare.gov. " Preventive Health Services. "
State of California Franchise Tax Board. " Individual Shared Responsibility Penalty Estimator ."
CFPB. " What is Homeowner's Insurance? Why is Homeowner's Insurance Required? "
CFPB. " What is Force-Placed Insurance ."
Texas Department of Insurance. " Do You Need Life Insurance? "
Centers for Disease Control. " Travel Insurance, Travel Health Insurance & Medical Evacuation Insurance. "
Investor.gov. " Variable Life Insurance ."
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- Life Insurance
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- Understanding Nomination and its Types
- Understanding Assignment and its Types
- Key Differences Between Nomination and Assignment
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Assignment vs Nomination in Life Insurance
In life insurance plans, Nomination and Assignment are the two important terms that are frequently used. Acknowledging these terms helps the policyholder to extract the benefits available under the life insurance policy without making a hole in his/her pocket.
Policyholders should know the exact difference between the two before making any decision to purchase the policy. It is required that individuals should read terms and conditions carefully so that one doesn't make any mistake and use the policy in the right way.
What is the Nomination?
The nomination is a right given to the policyholder that authorizes him/her to appoint a person (usually a close family member) to receive the benefits in the event of the death of the life assured. The person who is appointed by the policyholder to receive the benefit is called a Nominee. The nomination is governed under Section 39 of the Insurance Act, 1938.
Types of Nominees
Under the life insurance policy , the policyholder nominates a person who is entitled to receive the benefits in case something happens to the life assured. Some of the different types of nominees given below:
As per the law, any immediate family member (like spouse, children or parents) nominated by the policyholder is entitled to receive the monetary benefits and will be the beneficial owner of the claim benefits. It is important to note that only immediate family members can be termed as Beneficial Nominees.
Many individuals appoint their children as beneficiaries of their life insurance policies. Minor nominees (who are less than 18 years of age) are not considered eligible to handle claim amounts. For this, the policyholder needs to assign an appointee or custodian. The claim amount is paid to the appointee until the minor turns 18.
These types of nominees can be distant relatives or even friends as the beneficiary of the life insurance policy.
Policyholders can change their nominees as many times as they want, but the latest nominee should supersede all previous ones.
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LIC Term Insurance
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LIC Child Plan
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- The nomination is possible only when the policyholder and life assured are the same. In case, the policyholder and life assured are different, the claim benefits will be availed by the policyholder only.
- The nominee cannot ask for changes/modifications to the policy.
- There can be more than one nominee in the policy.
- In the successive nomination, if the life assured appoints person A to be the first person to receive the claim benefits in case of assured's death and person A is no more, then the claim benefits will be passed to person B. However, if Nominee A and Nominee B have passed away, later Nominee C will be appointed to avail the benefits and so on.
What is Assignment?
Assignment of the policy refers to the transfer of rights, title, and policy ownership from the policyholder to another person or entity. The person involved in assigning/transferring the policy is called assignor, and the person/institution to which it is assigned is called the assignee. The assignment is regulated under Section 38 of the Insurance Act, 1938.
The assignment is categorized under two different types, i.e. Absolute Assignment and Conditional Assignment.
Under the absolute assignment, all rights, title and interest are transferred by the assignor to an assignee without reversion to the assignor (in case of any event). It shifts the ownership of the insurance policy to other parties without any terms and conditions. This assignment is usually done for money consideration such as raising a loan, out of love or affection towards family members.
It 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, only then the policy will be transferred.
Key Points to know Regarding Assignment
- Under the assignment, only the ownership is transferred/changed, not the risk of the policy. This means the life assured is/will be considered as the person 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.
- The assignment applies to all the insurance plans except Pensions Plan and Married Women's Property Act (MWP).
- The assignment is effected through an endorsement on the policy contract.
Difference Between Assignment and Nomination
Let's discuss how assignment differs from 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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Naval Goel is the CEO & founder of PolicyX.com. Naval has an expertise in the insurance sector and has professional experience of more than a decade in the Industry and has worked in companies like AIG, New York doing valuation of insurance subsidiaries. He is also an Associate Member of the Indian Institute of Insurance, Pune. He has been authorized by IRDAI to act as a Principal Officer of PolicyX.com Insurance Web Aggregator.
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What is an insurance assignment?
Assignment — a transfer of legal rights under, or interest in, an insurance policy to another party . In most instances, the assignment of such rights can only be effected with the written consent of the insurer.
How does assignment of insurance work?
What are the two types of assignments in insurance.
- An absolute assignment is typically intended to transfer all your interests, rights and ownership in the policy to an assignee. ...
- A collateral assignment is a more limited type of transfer.
What does assignment mean on a life insurance policy?
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.
What is an insurance assignment form?
This form permanently transfers ownership of your FEGLI insurance to another individual, trustee, or corporation (however, premiums continue to be withheld from your salary/annuity). An assignment is irrevocable, and cannot be changed later.
What Is Assignment of Insurance? : Insurance Questions Answered
Why would you assign a life insurance policy?
A life insurance assignment is a document that allows you to transfer the ownership rights of your policy to a third party , transferring to that third party all rights of ownership under your policy, including the rights to make decisions regarding coverage, beneficiary and investment options.
What does it mean to accept assignment of benefits?
“Assignment of Benefits” is a legally binding agreement between you and your Insurance Company, asking them to send your reimbursement checks directly to your doctor. When our office accepts an assignment of benefits, this means that we have to wait for up to one month for your insurance reimbursement to arrive .
What does policy assigned mean?
assign a policy in Insurance If you assign a policy, you transfer legal ownership of an insurance policy to another person . The policy may be assigned to someone else by written request of the current owner.
What is the procedure for assignment in life policy?
Assignment of a life insurance policy may be made by making an endorsement to that effect in the policy document (or) by executing a separate 'Assignment Deed' . In case of assignment deed, stamp duty has to be paid. An Assignment should be signed by the assignor and attested by at least one witness.
What's the difference between nomination and assignment?
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.
What you mean by assignment?
Definition of assignment 1 : the act of assigning something the assignment of a task. 2a : a position, post, or office to which one is assigned Her assignment was to the embassy in India. b : a specified task or amount of work assigned or undertaken as if assigned by authority a homework assignment.
What are the types of assignment?
- essays. Discover the basic structure of all essays and see what a good essay introduction and conclusion look like.
- Reports. ...
- Literature Reviews. ...
- Annotated Bibliographies. ...
- Reflective Tasks. ...
- Case Studies. ...
- Group work. ...
- group presentation skills.
Can an insurance policy be assigned or transferred?
In insurance also when rights and obligation under the contract are transferred from one to another, the same is called assignment of the policy . There can be another assignment in insurance which is assignment of benefits under the policies. Assignment of policy and assignment of benefits are quite distinct.
Why is assignment of benefits not recommended?
Loopholes in the way AOB is being used are enabling contractors and restoration companies to abuse the practice by inflating claims costs and charging insurance companies for work that was either unnecessary or simply wasn't done at all. These fraudsters then keep any extra money for themselves.
What is the purpose of assignment of benefits?
Assignment of benefits is a legal contract between you and a third party, such as a roofer, contractor, or other vendors. The AOB allows you to transfer specific rights that your insurance policy grants you to a third party .
Can insurance proceeds be assigned?
Most business insurance policies contain a so-called anti-assignment clause . This clause prohibits policyholders from transferring any of their rights under the policy to someone else. This means that the insured business cannot cede its right to collect claim payments to another party.
What is the effect of assignment to the policy owner?
The Assignee has control of the insurance policy as if the Assignee is the Policy Owner. There is no change to the life assured in the policy and the policy remains unaltered .
What do you mean by assignment and transfer of policies?
--(1) A transfer or assignment of a policy of insurance, wholly or in part, 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 ...
What is conditional assignment in insurance?
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.
Which of the following are two kinds of assignments?
- Absolute Assignment. An absolute assignment transfers all the rights in the insurance policy to the assignee, including the responsibility to pay any remaining premiums. ...
- Collateral Assignment. ...
- Reasons for Assignment. ...
What does benefit assigned mean?
Assignment of benefit When a patient assigns their right to the benefit to the servicing provider as full payment for those services .
What is the difference between assignment of benefits and accept assignment?
To accept assignment means that the provider agrees to accept what the insurance company allows or approves as payment in full for the claim. Assignment of benefits means the patient and/or insured authorizes the payer to reimburse the provider directly.
What does it mean to not accept assignment?
A: If your doctor doesn't “accept assignment,” (ie, is a non-participating provider) it means he or she might see Medicare patients and accept Medicare reimbursement as partial payment, but wants to be paid more than the amount that Medicare is willing to pay .
How many types of insurance assignments are there?
There are two types of assignment : Conditional assignment: This is done when the insured wishes to pass benefits of the policy to a relative in case of early death or certain conditions. The rights of the policyholder are restored once the conditions are fulfilled.
What are the consequences of an absolute assignment?
If an absolute assignment was made, the company will pay the entire proceeds to the assignee . If a collateral assignment was made, the company will usually make the check payable jointly to the assignee and the beneficiary.