Assignment of Life Policies

Insurance Policies Life Assurance Policy Assignment Insurable Interest Endowment Assurance
A transfer of the legal right under a life-assurance policy to collect the proceeds, initiated by notifying and receiving agreement from the life insurer.
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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.

  • 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

### What must happen for an assignment of a life policy to be considered valid? - [x] The life insurer must be notified and agree to the assignment. - [ ] The assignee must possess an insurable interest in the insured's life. - [ ] Only notarization of documents is required. - [ ] No additional steps aside from signing are necessary. > **Explanation:** For an assignment of a life policy to be valid, the insurer must be notified, and the insurer must agree to the assignment. ### Does the assignee need an insurable interest in the insured's life for a life assurance policy assignment? - [ ] Yes - [ ] No, but only for specific types of policies. - [x] No, an insurable interest is not required. - [ ] Both parties need to possess an insurable interest. > **Explanation:** In life assurance policy assignments, the assignee does not need to possess an insurable interest in the insured's life. ### What is one alternative to surrendering an endowment assurance policy? - [ ] Re-assignment to a family member - [ ] Canceling the policy immediately - [x] Policy auctions - [ ] Insurer buy-back programs > **Explanation:** Policy auctions have become an alternative to surrendering endowment assurances, where the policy is sold to the highest bidder. ### What typically happens during a policy auction? - [ ] The insurer buys back the policy. - [ ] The policyholder reassesses the policy value. - [ ] The policy is nullified and canceled. - [x] The policy is sold to the highest bidder and assigned to them. > **Explanation:** In policy auctions, the policyholder auctions the policy to the highest bidder who then becomes the new assignee. ### Can all life assurance policies be freely assigned? - [ ] Yes, without any restrictions. - [ ] No, only long-term policies. - [ ] Yes, but only within family members. - [x] Depends on the specific policy terms and insurer's guidelines. > **Explanation:** The ability to assign a policy depends on the terms and conditions of the specific policy and the insurer's guidelines. ### Assignment of life policies mostly concerns which type of insurance? - [ ] Health Insurance - [ ] Car Insurance - [x] Life Assurance - [ ] Property Insurance > **Explanation:** The assignment of life policies primarily concerns life assurance. ### What can be a benefit of assigning a policy over surrendering it? - [ ] Reduced paperwork - [x] Higher value via auctions - [ ] Immediate benefits - [ ] No benefit if assignativer is the same > **Explanation:** Assigning a policy, particularly through auctions, can often yield a higher value compared to surrendering. ### Who becomes the beneficiary in a policy assignment? - [ ] The original policyholder - [x] The assignee - [ ] The life insurer - [ ] The policyholder's family > **Explanation:** The assignee becomes the new beneficiary when a policy is assigned. ### What is an **endowment assurance** policy designed for? - [ ] Short-term financial gains - [x] Lump sum payment after a term or death - [ ] Immediate annuity benefits - [ ] Health coverage disparities > **Explanation:** An endowment assurance policy is designed to provide a lump sum after a specified term or upon the death of the insured. ### When selling a life assurance policy at auction, who handles the assignment procedure? - [ ] Only the policyholder - [ ] Only the insurer - [x] The policyholder with the insurer's consent - [ ] An independent broker > **Explanation:** The policyholder handles the assignment procedure with the consent of the insurer.

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.

Tuesday, August 6, 2024
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Assignment of Lease
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Life Assurance January 1, 1

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