Assignment of Life Policies

Assignment of Life Policies

Definition

Assignment of Life Policies refers to the transfer of the legal right under a life-assurance policy to another party, generally entitling the assignee to collect the proceeds of the policy. This assignment is valid only if the life insurer is notified and agrees to the transfer. Life assurance is unique in that the assignee need not possess an insurable interest in the life of the insured.

Examples

1. Personal Assignment: John holds a life assurance policy and decides to assign it to his son, Michael. John notifies the insurer, who consents to the assignment, allowing Michael to become the new policyholder and entitling him to collect the proceeds upon the maturity or claim of the policy.

2. Policy Auction: Emma has an endowment assurance policy she no longer needs. Instead of surrendering it, she auctions the policy wherein the highest bidder, Liam, purchases it. Emma assigns the policy to Liam, making him the new beneficiary.

Frequently Asked Questions (FAQs)

1. What is required for a life policy assignment to be valid?

   For a life policy assignment to be valid, the life insurer must be notified of the assignment and must agree to it.

2. Does the assignee need to possess an insurable interest in the insured’s life?

   No, in life assurance, the assignee does not need to possess an insurable interest in the insured’s life.

3. What are policy auctions in the context of life assurance?

   Policy auctions are an alternative to surrendering endowment assurances where a policyholder can sell the policy to the highest bidder in an auction, who then becomes the new assignee.

4. Can all types of life assurance policies be assigned?

   While many life assurance policies can be assigned, the terms and conditions of the specific policy and the insurer’s guidelines should be reviewed for any restrictions.

5. What is the benefit of policy assignment over surrendering?

   Assigning a policy, especially through auctions, can often result in a higher value than directly surrendering the policy to the insurer.

Related Terms and Definitions

• Life Assurance: A contract between an individual and an insurer, where the insurer agrees to pay a designated beneficiary a sum of money upon the death of the insured person.
• Endowment Assurance: A type of life insurance policy designed to pay a lump sum after a specified term (on its ‘maturity’) or on death.
• Insurable Interest: A requirement in life insurance policies where the policyholder must have a financial or emotional interest in the continued life and wellbeing of the insured.

Online Resources

1. Investopedia - Assignment of Life Policies
2. Life Insurance - Assignment and Transfer
3. Financial Web - Life Insurance Policy Assignment

Suggested Books for Further Studies

• “Life Insurance: A Consumer’s Handbook” by Joseph M. Belth
• “Life Insurance in Asia: Sustaining Growth in the Next Decade” by Stephan Binder and Joseph Luc Ngai
• “The Handbook of Insurance” by Georges Dionne

Accounting Basics: “Assignment of Life Policies” Fundamentals Quiz

Thank you for expanding your knowledge on the critical elements of life assurance policies and tackling our comprehensive quiz designed to test your understanding of policy assignment.