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Importance of Assignment of Life Insurance Policy

Importance of Assignment of Life Insurance Policy

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If you are looking for ways to take a loan, here is a solution at hand through Assignment of life insurance policy. A life insurance Policy is a protection plan with Death Benefit and/ or Maturity benefit which is entitled to the beneficiary. How about keeping it as a pledge to another person or an institution so that you can get some financial assistance in lieu of it?,

Assignment of life insurance policy is something similar where a policy holder transfers the rights of holding a life insurance policy to another person or a company – say, the same insurance company which provided the policy – with a hope of getting a loan or financial help in exchange for that policy. The policy holder who transfers his or her right from the policy is the Assignor while the buyer of the rights is the assignee. The assignment of the policy can be done various types of life insurance, such as Pension plans, Unit Linked Insurance Plans (ULIP) s, and any policies with a sum assured.

Does assignment of life insurance policy really help the policy holder? How important and viable is it in the insurance sector? Take a look at various aspects of assignment of life insurance policy.

Unconditional Assignment and its Popularity

Unconditional or absolute assignment of life insurance policy allows an assignor to “sell” the life insurance plan to the Assignee totally where all the rights are transferred. The assignor has no financial commitments on the policy nor has any rights on the payouts promised in the policy. Often, an assignor assigns life insurance policy to the insurance company itself or a trust, unconditionally. Sometimes, an extra life insurance policy is sold or gifted to another person. Assignment is generally hassle-free. Many online life insurance policies today allow assignment of the plan.

Consider a situation where an elderly person has a life insurance policy and is seriously ill. He requires money for his treatment and well being. He plans to assign his life insurance policy to a trust that would give him the much needed cash now in exchange for the policy itself. The value of the assignment is based on the cash value of the policy.

Conditional Assignment and its Utility

Conditional assignment refers to the transfer of policy rights from an assignor to assignee if only certain conditions are met. These conditions are based on events where assignor has no say. In other words, this form of assignment is known as collateral assignment where the transfer is not done wholly but partially during the assignment.

Consider a situation where a person is in debt or needs to take a loan. He uses his policy as a security for loan repayment. If the assignor dies before paying the debt, the assignee gets the policy benefit. If such conditions are not met, the policy does not get transferred to the assignee. It is possible for the Beneficiary to get a certain amount of the benefit from the policy. The funds left over after loan repayment to the assignee is awarded to the beneficiary.

Assignment of Transfer

The process of assigning life insurance policy to the assignee is done easily through legal paperwork. Apart from an individual, life insurance firm, or a trust, there can be financial institutions that can also be an assignee of your life insurance policy.

Here’s a point to note: although assigning has its advantages, it reduces the benefit that you would original bargain from an insurance company in case the assignment is a conditional one. Many people there consider getting a pure protection life insurance plan to protect the reduced value of the assigned policy for a time when loan is still required to be paid. Although this option is not the best life insurance plan, it provides some financial protection nevertheless.

So, you can get life insurance policy and assign it and use it as collateral to get loans in case you need it in future.