Gift or Collateral:Everything You Need to Know About Assigning a Life Insurance Policy
Did you know that you could gift a life insurance policy to your loved ones? A financial security plan to take care of all the expenses in case of emergencies - what could make a better gift than this? Life insurance policies can also be used as collateral security for borrowing loans from a bank.
A life insurance policy is a gift to someone when you:
Use it as a financial asset
A life insurance policy is a valid financial asset and can be handed over to another person with necessary due diligence. You can transfer the policy completely or partly and the assignment can be absolute or conditional. Insurance policies can serve the dual purpose of a savings instrument and of being a financial asset.
Transfer the rights, interest and the title of the policyholder
According to Section 38 of the Insurance Act, 1938 after the complete transfer of the insurance policy, all the rights, interests and title of the policyholder are entirely vested in the assignee. The assignee who gets the policy as a gift becomes a full owner of the insurance policy and the purchaser or the policyholder won’t have any ownership on the policy once the rights, interests and the title are completely transferred.
Change the nomination
Whenever a policy is completely transferred to the family member, the nomination is cancelled. Hence, the nominees that were considered during the purchase of the policy will not remain nominee to the policy after it's transferred to the new assignee. Remember to nominate your loved ones after the policy is transferred as without a proper nomination your family members won’t have any access to the insurance amount.
Once assigned, it is irreversible
Assignment of the policy is irreversible and the policyholder who had originally purchased the policy can only get it back if the assignee transfers the rights, interests and the title of the policy, back to the policyholder. Hence, if you gift a policy to someone you can’t get any benefits of the insurance plan for yourself. So, while transferring the policy to someone else never buy it as a saving instrument for yourself. However, the assignee to whom you will gift the policy can use it as a saving instrument or as a collateral for a loan.
Transfer it in front of a Witness
When the transfer document is signed there needs to be at least one witness present. For a complete assignment, the assignee needs to agree to the insurance policy transfer. A written notice must be acknowledged by the insurer or the assignee for the complete execution of the transfer.
A life insurance policy is a collateral when you:
Use it as Loan Security
A life insurance policy can also be used as a collateral security. Hence, it not only acts as your saving instrument but also acts as your financial asset. You can transfer the ownership to the bank while borrowing a loan and get it back once you have paid the complete loan. When you use the policy as a collateral for taking the loan all the nominations become nil. After you repay the loan you need to get new nominations for your policy.
So now become a well-informed policyholder and make use of assignment or transfer of policy in ways that will benefit you or the assignee.
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The aforesaid article presents the view or an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ before making any decision.
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