Definition
Assignment of Policy
Assignment is the legal transfer of the rights, title and interest in a life insurance policy from the policyholder to another person or entity.
Under the Insurance Act, a policyholder can assign a policy by an endorsement or a separate deed, with notice to the insurer. An absolute assignment transfers all rights to the assignee permanently, while a conditional assignment (common when a bank takes a policy as loan security) reverts rights to the assignor once the condition, such as loan repayment, is met.
Assignment overrides any existing nomination, since the assignee becomes the new owner. This is why a policy pledged to a lender pays the lender first. Assignment differs fundamentally from nomination, which only authorises someone to receive proceeds, not to own the policy.
Related terms
- NominationNomination is the act of naming a person to receive the policy proceeds on the policyholder's death, without transferring ownership of the policy.
- Conditional AssignmentA conditional assignment transfers a life policy's rights to an assignee subject to specified conditions, with the rights reverting to the assignor once those conditions are met.
- Collateral AssignmentCollateral assignment is a conditional transfer of a life policy to a lender as security for a loan, with rights reverting once the loan is repaid.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.