<div><em>Understanding how nomination works and its legal standing as against assigning a policy is important when you buy life insurance, says <strong>Sunil Dhawan</strong></em></div><div> </div><div>Insurance is bought with the objective that after death, the family members who are financially dependent can maintain the same standard of living. To ensure this to happen, insurance policies requires a family member to be nominated. Most insurers would insist that the person nominated should have insurable interest for being nominated or be a family member. </div><div> </div><div>But it’s important to understand the legal standing of a nominee. Nominee is merely a caretaker of the proceeds.</div><div> </div><div>A nominee in a life insurance contract is the person as appointed by the policyholder at the time of buying an insurance policy, to whom the insurer discharges his liability of paying a claim upon the death of the insured during the term of the policy. </div><div> </div><div>In the event of a claim the nominee does not receive the policy’s money in his individual capacity. Also, he cannot exercise any kind of right on the whole or even part of the claim amount. </div><div> </div><div>As a nominee, he only has the right to give a valid discharge to the insurance company and to hold the money on behalf of those who are entitled to it, i.e., the legal heirs of the insured. </div><div> </div><div><strong>Assigning, the way out:</strong> The only way for a policyholder to ensure that the policy money goes to the person he wants is to assign the policy to that person. The assignee to which the policy is assigned has absolute rights over the policy and will supersede any nomination made earlier. Assigning your policy through Married women protection Act is one way to ensure that proceeds goes to a specific member. </div><div> </div><div>The policy is assigned through an endorsement on the policy document, or on a separate stamped deed signed by the policyholder and submitted to the insurer. A witness has to sign in both cases.</div><div> </div><div>Assignments are also done towards an institution for repayment of loans. Your life insurance policy is assigned to the institution as a security through assignment. And once it gets transferred, you still are the insured, but you no longer own the insurance value of it. You however, need to continue paying the premiums. The lending institution reassigns the policy to the policyholder after the loan has been repaid.</div><div> </div><div><strong>Downside of Assigning:</strong> A major drawback of assigning a policy is that the process is almost irreversible. Having once assigned a policy, a policyholder cannot change his decision unless the assignee agrees to give up his rights over the benefits. </div><div> </div><div>On assigning a policy, the assignor loses his rights over the policy. The assignee then becomes the owner of the policy and enjoys all the rights and benefits. A policyholder should, therefore, choose an assignee with care. This is especially true of money back policies where the assignee-and not the policyholder-is eligible for the benefits even before the premium paying term ends. An assignee can re-assign the policy if he wishes.</div><div> </div><div><strong>End note:</strong> Much of the litigation in life insurance policies is around nominations. Legal heirs have the right to the proceeds even if their name doesn’t find a place in insurance documents. If you want to make sure that the proceeds go to a specific member, assign your policy rather than merely nominating. After all, it's not for yourself that you buy a life cover.</div><div> </div>
