Absolute Assignment Life Insurance

Absolute assignment is most often encountered in the insurance industry. It is the irrevocable transfer of all of your interests, rights and ownership regarding an insurance policy both in the present and in the future. One common use of an absolute assignment is during a life settlement on a life insurance policy where you sell your policy prior to your death.

Absolute assignment can be applied to a life insurance policy.

Parties to an Absolute Assignment

There are several parties (people) involved in an absolute assignment of an insurance policy. It is important to understand the function of each party. The first party is the insured, the person who is covered under the insurance policy. If it is a life insurance policy this would be the person whose life is insured. The assignor is the person who currently owns the rights the policy is providing. The assignee is the person who will be receiving the rights.

Other Parties Involved

In addition to the people directly involved in the absolute assignment transaction, there are people who are tangentially involved. The first is the primary beneficiary. The primary beneficiary is the person who benefits if the policy pays off. In addition to the primary beneficiary there is often a secondary beneficiary who will receive the insurance proceeds if for some reason the primary beneficiary becomes ineligible. One of the primary rights that the assignee is looking to acquire is the right to choose the beneficiaries.

Why Assign Your Rights?

There are a variety of reasons why a person might want to assign his rights of ownership to an insurance policy. Business policies might be assigned if the business is sold. Life insurance policies might be assigned if a person is near death but needs the money to pay medical costs. Accident insurance policies might be assigned to cover the costs associated with the accident.

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Why Absolute?

The term absolute means that once the rights are assigned you can't change your mind. Often when an life insurance policy is assigned the assignee might have to make several insurance payments before collecting on the policy. He certainly wouldn't agree to this if at some point in the future the original owner of the policy could change his mind and take the policy back. Therefore the policy transfer is absolute and can't be revoked.

Other Uses of Absolute Assignment

In addition to the insurance industry, absolute assignment is often used in the mortgage industry. Often in a commercial mortgage the lender will insist on an absolute assignment of rents clause in the mortgage contract. This means that if the lender has to foreclose on the property he not only gets the property but he also gets the rights to any rents the property is generating. This could be significant if the lender got the property but the former owner got to keep the rent.

The process of transferring rights of a Life Insurance Policy is called Assignment. There are 2 types of Assignment.

 

1. Absolute Assignment

2. Conditional Assignment

 

Absolute Assignment means complete Transfer of Rights. The person who transfers the rights is called the Assignor and the person to whom the rights are being transferred is called the Assignee.

 

Hence Absolute Assignment means completely transferring whole and sole rights of the policy from the Assignor to the Assignee without any further terms and conditions applicable.

 

The process of assignment is complete only when the original Policy Document has been endorsed or a fresh Policy Document has been issued in favour of the Assignee.

 

Let’s take an example:

 

Rahul owns a Life Insurance policy of value Rs 5 lakhs. He would like to gift it to his best friend Ajay. 

 

Thus, in that case, he would like to perform Absolute Assignment of the policy in Ajay’s name such that the death or maturity proceeds are directly paid to him. Rahul’s family members or nominee does not have any right on the policy money. 

 

After the assignment is executed, Ajay becomes the absolute owner of the policy. If he wishes, he may again transfer it to someone else for any other reason. This type of Assignment without any further clauses attached to it is called Absolute Assignment.

 

 

Example in real life of Absolute Assignment happens in case of an Insurance Policy being taken by the employer as a perquisite for the employee. Once the policy is purchased, it is transferred to the employee’s name under Absolute Assignment clause. Hence the employee becomes the owner of the policy, but the employer pays for it till the end. Thus, instead of paying the employee cash, they purchase an insurance policy in their name and add it to their Annual Income Package.

 

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