When buying a life insurance policy, you may come across two important terms: assignment and nomination. Both involve another person having an interest in the policy, but they are not the same.
A nominee is generally the person named to receive the policy money on the policyholder’s death, subject to the applicable law and policy terms. An assignee, on the other hand, receives rights or benefits in the policy through a transfer or assignment made by the policyholder.
In India, assignment is governed by Section 38 of the Insurance Act, 1938, while nomination is governed by Section 39.
Understanding the difference is important because an assignment can affect an existing nomination and can change who has rights in the policy.
Assignment vs Nomination: Quick Difference
| Point | Assignment | Nomination |
| Main purpose | Transfer rights or interest in the policy | Name a person to receive policy money on death |
| Relevant law | Section 38 | Section 39 |
| Who makes it? | Policyholder/assignor | Policyholder |
| Person involved | Assignee | Nominee |
| Does it transfer policy rights? | Yes, subject to applicable law and procedure | No, nomination itself is not an assignment |
| Common use | Transfer/security for a loan or another legitimate purpose | Family/beneficiary planning |
| Can it affect nomination? | Yes | It does not operate like an assignment |
| Can it be changed? | Depends on the nature and terms of assignment | Nomination can generally be changed as permitted by law |
| Insurer’s role | Assignment must be properly notified/registered as required | Nomination must be recorded by the insurer |
What Is Nomination in Insurance?
Nomination is a facility through which a life insurance policyholder names one or more people to receive the policy money when the policyholder dies.
For example, suppose Rahul buys a life insurance policy and nominates his wife.
If Rahul dies while the policy is in force, the nominee can make a claim and receive the policy proceeds in accordance with the applicable law and policy terms.
Nomination is therefore primarily connected with the death benefit.
Under Section 39, nomination can be made during the policy term and can generally be changed in accordance with the prescribed procedure.
Example of Nomination
Suppose:
- Policyholder: Rahul
- Life assured: Rahul
- Nominee: Rahul’s wife
- Sum assured: ₹1 crore
If Rahul dies during the policy term, the nominee is the person named in the policy for receiving the applicable death benefit.
However, nomination should not automatically be understood as equivalent to ownership of the money in every situation. The legal effect can depend on the type of nomination and applicable succession law.
What Is Assignment in Insurance?
Assignment means transferring rights, title or interest in an insurance policy from the policyholder to another person, known as the assignee, subject to the requirements of Section 38 and the applicable policy terms.
For example, a policyholder may assign a life insurance policy to a lender as security for a loan.
Assignment can therefore have a much stronger effect on the policy rights than ordinary nomination.
Under Section 38, an assignment may be made through an endorsement on the policy or through a separate instrument, with notice to the insurer and compliance with the prescribed requirements.
Why Do People Assign Insurance Policies?
Assignment can be used in different situations.
- Assignment as Loan Security
A life insurance policy may be assigned to a lender as security for a loan, where permitted.
For example, suppose a person has a life insurance policy and takes a loan from a financial institution.
The policy may be assigned to the lender as security according to the applicable terms and legal requirements.
- Transfer of Policy Rights
An assignment can also be used to transfer policy rights to another person where such transfer is legally permitted.
The exact effect depends on the type and terms of assignment.
- Business or Financial Arrangements
In certain legitimate financial or business arrangements, assignment may be used where the policy has transferable rights.
The policyholder should understand the consequences before signing an assignment document.
Absolute Assignment vs Conditional Assignment
Assignment can broadly be understood in terms of its purpose and conditions.
Absolute Assignment
An absolute assignment generally transfers the policy rights to the assignee without the assignment being merely a security arrangement.
Once properly completed and registered, the assignee may acquire the rights transferred under the assignment.
Conditional Assignment
A conditional assignment is made subject to specified conditions.
One common example is assignment of a policy as security for a loan.
Once the underlying obligation is satisfied, the policy may be dealt with according to the applicable terms and documents.
The precise legal effect depends on the assignment document and applicable law.
Nomination and Assignment: How They Affect Each Other
This is one of the most important differences.
An assignment can affect an existing nomination.
Insurance policy documents commonly state that nomination is cancelled or affected upon registration of an assignment, subject to the applicable law and terms.
Therefore, a policyholder should not assume that the nominee will continue to have the same position after assigning the policy.
After the assignment ends or the policy is reassigned back, the policyholder should check the nomination status and update it if necessary.
Who Has Rights: Nominee or Assignee?
This depends on the circumstances.
An assignee may acquire the rights transferred through the assignment, while a nominee is named primarily for receiving policy money on the death of the policyholder under the applicable nomination provisions.
Therefore, assignment is generally about transferring policy rights, while nomination is about identifying the person entitled to receive the policy money in the circumstances covered by the nomination.
This distinction becomes especially important when a policy has been assigned.
Assignment vs Nomination Example
Consider this example.
Rahul buys a ₹1 crore life insurance policy and nominates his wife.
Later, Rahul takes a loan and assigns the policy to a lender as security.
Now there are two different arrangements:
- Wife = nominee
- Lender = assignee
The lender’s rights arise from the assignment.
The wife’s position arises from nomination.
If Rahul dies while the assignment is in force, the policy proceeds may be dealt with according to the assignment and the applicable legal and contractual provisions.
This is why a policyholder should understand the outstanding loan and assignment status before assuming that the nominee will receive the entire policy amount.
Can You Nominate Someone After Assignment?
This depends on the nature and status of the assignment and the applicable policy terms.
A registered assignment can affect the existing nomination. Therefore, if a policy has been assigned, the policyholder should ask the insurer how nomination can be made, restored or updated after the assignment is discharged or otherwise ends.
Do not rely on the old nomination record without checking the policy status.
Can You Change a Nominee?
Generally, a policyholder can change the nomination during the policy term according to Section 39 and the insurer’s prescribed process.
A policyholder may want to update the nominee after:
- Marriage
- Divorce
- Birth of a child
- Death of an existing nominee
- Change in family circumstances
- Other personal or estate-planning considerations
The change should be properly communicated to and recorded by the insurer.
What Happens If the Nominee Is a Minor?
A minor can be nominated, but an appointee may need to be specified to receive the policy money on behalf of the minor, according to the applicable provisions and insurer’s process.
For example:
- Policyholder: Parent
- Nominee: Minor child
- Appointee: Adult specified to receive/hold the benefit for the minor
The policyholder should check the insurer’s prescribed form and requirements when making such a nomination.
Is Assignment the Same as Selling an Insurance Policy?
No.
Assignment is a legal mechanism for transferring rights or interest in a policy. It does not automatically mean that the policy has been sold for cash.
An assignment can be made with or without consideration, subject to Section 38 and the applicable requirements.
The reason for assignment and the terms of the transfer should be properly documented.
Assignment vs Surrender
Assignment should also not be confused with surrender.
| Assignment | Surrender |
| Transfers policy rights/interest | Ends the policy according to surrender provisions |
| Involves an assignee | Usually involves the policyholder and insurer |
| Policy may continue | Policy generally terminates after surrender |
| Can be used as loan security | May provide a surrender value where applicable |
| Governed by applicable assignment rules | Governed by product/policy surrender provisions |
For example, assigning a policy to a lender as security does not necessarily mean that the policy itself has been surrendered.
Assignment vs Nomination vs Legal Heir
These three concepts are also frequently confused.
| Concept | Basic role |
| Assignment | Transfer of policy rights/interest |
| Nomination | Naming a person to receive policy money on death |
| Legal heir | Person entitled under applicable succession law |
A nominee is not automatically the same thing as a legal heir in every case.
Similarly, an assignee is not simply another type of nominee.
The legal effect can depend on the circumstances, including the type of nomination, assignment and applicable succession provisions.
What Happens If There Is No Nominee?
If there is no valid nomination and no applicable assignment governing the payment, the insurer may require documents establishing the entitlement of the claimant or legal heirs.
Depending on the circumstances, documents may include:
- Death certificate
- Identity documents
- Legal heir certificate
- Succession certificate
- Probate or letters of administration
- Other documents required by the insurer
The exact documents depend on the claim and applicable law.
What Documents Are Needed for Assignment?
The insurer’s requirements can vary, but an assignment generally involves documentation establishing the assignment and notice to the insurer.
Depending on the case, this can include:
- Policy document
- Assignment form/instrument
- Details of assignor
- Details of assignee
- Signatures
- Witness details
- Supporting documents
- Loan/security documents, where applicable
Section 38 contains specific requirements concerning the assignment instrument and notice to the insurer.
What Documents Are Needed for Nomination?
Nomination is usually simpler.
The insurer may require:
- Policy details
- Nominee’s name
- Nominee’s relationship with the policyholder
- Date of birth
- Address/contact details
- Appointee details where the nominee is a minor
- Prescribed nomination/change form
The nomination should be properly recorded by the insurer.
Important Things to Check Before Assigning a Policy
Assignment can have significant consequences, so consider the following before signing:
Check the Purpose
Understand why the policy is being assigned and whether it is being used as loan security or for another purpose.
Read the Assignment Document
Do not sign a document without understanding which rights are being transferred.
Check Existing Nomination
Find out what happens to the existing nomination after assignment.
Keep Copies
Keep copies of:
- Assignment document
- Policy document
- Loan/security agreement
- Insurer acknowledgement
Confirm Registration
Assignment is not something you should treat as completed merely because you signed a document. The applicable notice and registration requirements with the insurer must be followed.
What If the Insurer Does Not Update the Assignment or Nomination?
First, contact the insurer and submit the request through its prescribed service or grievance channel.
Keep written evidence of the request and acknowledgement.
If the insurer does not resolve the issue satisfactorily, you can approach its Grievance Redressal Officer.
IRDAI’s Bima Bharosa FAQ states that policyholders should first approach the insurer’s Grievance Redressal Officer in writing. The insurer should resolve the complaint within 15 days. If the issue remains unresolved or the response is unsatisfactory, the policyholder can escalate it through Bima Bharosa/IRDAI.
Common Mistakes to Avoid
Treating Nomination as Ownership
Nomination and ownership are not automatically the same legal concept.
Ignoring an Assignment
If you have assigned a policy, do not assume the original nomination continues unchanged.
Not Informing the Insurer
Signing an assignment document without completing the required notice and registration process can create problems.
Forgetting to Update Nomination
After an assignment ends, check whether the nomination needs to be restored or changed.
Not Keeping Documents
Keep copies of every assignment, nomination and insurer acknowledgement.
Assuming Every Policy Can Be Assigned
Assignment is subject to the applicable law, policy terms and prescribed conditions. Do not assume that every policy or every situation permits assignment in the same way.
Frequently Asked Questions
What is the main difference between assignment and nomination in insurance?
Assignment involves transferring rights or interest in an insurance policy, while nomination involves naming a person to receive the policy money on the policyholder’s death, subject to applicable law.
Which section deals with assignment?
Assignment of insurance policies is governed by Section 38 of the Insurance Act, 1938, subject to the applicable provisions.
Which section deals with nomination?
Nomination is governed by Section 39 of the Insurance Act, 1938.
Does assignment cancel nomination?
A registered assignment can affect or cancel an existing nomination according to the applicable law and policy terms. Therefore, policyholders should check the nomination status after assignment.
Can I change my nominee?
Generally, yes. Nomination can be changed during the policy term according to the applicable provisions and insurer’s process.
Can a life insurance policy be assigned to a bank?
A life insurance policy may be assigned to a lender as security where permitted and where the applicable requirements are satisfied.
Is an assignee the same as a nominee?
No. An assignee obtains rights or interest through an assignment, while a nominee is named to receive policy money on death under the applicable nomination provisions.
Can a nominee and assignee be the same person?
The circumstances can vary, and the legal effect depends on the assignment and nomination arrangements. The insurer should be consulted before making such changes.
What happens after a loan-related assignment ends?
After the underlying loan/security arrangement is completed, check with the insurer whether the assignment has been released or otherwise dealt with and whether the nomination needs to be restored or updated.
Conclusion
Assignment and nomination are two different mechanisms in life insurance.
Nomination is mainly used to identify the person who will receive the policy money on the policyholder’s death, while assignment involves transferring policy rights or interest to an assignee.
The key legal distinction is that Section 38 deals with assignment and Section 39 deals with nomination under the Insurance Act, 1938.
If you are considering assigning a policy, especially as security for a loan, read the assignment document carefully and confirm how it affects the existing nomination. After the assignment is released or ends, check the insurer’s records and update the nomination if required.
Keeping the insurer’s records updated can help reduce confusion when the policy eventually needs to be serviced or claimed.
