Difference Between Nomination and Assignment
Nomination and assignment are two legal terms very widely used in the life insurance sector. On the surface, they might look similar. However, they suggest two different activities by the policy holder and hence you must thoroughly know what they imply so that you do not make any mistakes and use them in the right way.
What do these words mean?
The term nomination means appointing a person to receive the policy benefits upon the death of the policy holder. The person thus chosen legally by the policy holder is called ‘Nominee’. The word assignment means the legal transfer of all the rights and benefits of the policy to the person to whom the policy holder has assigned it. Here the person assigned by the policy holder through a legal procedure is called the ‘Assignee’.
In the act of nomination, the amount or property represented by the policy will remain under the disposal of the policy holder till the time he or she is alive. Only the benefits of the policy will go to the nominee in case of death of the assured. In case of assignment, all the assets and policy amount passes on by default to the assignee. The assignee now gets the title or ownership of the policy.
About Nomination in detail
In the life insurance sector, nomination is a kind of facility that allows the policy holder (the insured) to nominate a person. The legal process of nomination authorizes the nominee to claim amount accrued on the policy upon the death of the policyholder. In case the nominated person is a minor, a major must be specified during the process of nomination to receive the money on behalf of the minor nominee.
Nomination can be made when the policy is purchased or any time before the term of the policy expires. During the term of the policy, the policyholder can also change the nominee. If the policyholder is alive when the policy matures or if the nominee dies before the policy matures, the policy amount is paid to the policyholder or his or her legal heir or representative.
About Assignment in detail
As the literal meaning of the term suggests, assignment means the legal transfer of rights of the policy from the policy holder (insured) to the person to whom it is assigned. As a result of this act, the assignee will receive the benefits that are mentioned in the insurance agreement. Generally, assignment is done out of the love and care of the policy holder to anyone of the family members or friends. Assignment can also be done to a third party in case of any adequate consideration or other arising reasons.
Assignment is usually done via an endorsement upon the policy. It can also be done through a separate instrument which will have to be duly signed by the assignor or the agent. The signature must be witnessed by a competent person who will authorize it. Once the documents are received by the insurance company, the assignment becomes effective.
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