Assignment of insurance

From CEOpedia | Management online

Assignment of insurance it's a transfer of ownership rights in a life insurance policy or other type of contract from one individual to another. It's a document that creates the transfer of ownership rights of a life insurance policy into effect. It's a transfer, after an event insured against, of an individual's legal right to collect a payable under an insurance contract (M. Fordney 2011, p. 24).

The most common is the assignment of insurance rights to a specific third party or entity, e.g. a bank granting a loan for a flat or a lessor in autocasco insurance. The entity to which the assignment is made becomes the holder of the rights to the object of the assignment. This means that an assignment is a debt assignment agreement under which the assignee - a third party to the insurance agreement (e.g. a bank) acquires a future claim (e.g. from the insurance agreement - death benefit of the insured, indemnity). A reservation in insurance documents, obliging the insurer to pay indemnity to the person to whom the reservation has been established.

A cession is also a transfer of ownership rights, as well as rights to claims (assignment of receivables), to another business entity. The transferor of the right is called the assignor and the acquiring right the assignee. Assignment is also a form of sale or rather a transfer of a claim, an agreement through which a creditor transfers his claim to another person.

Assignment of insurance policy rights - general conditions

The transfer of rights under an insurance policy to use a credit insurance policy as a financial instrument in order to relieve credit risk and acquire financing for trade or rental of loans on more beneficial terms is a general objective of the transfer of rights under an insurance policy. Banks can also use such assignments in other forms of credit insurance, for instance in the case of customer credit, where life or fire insurance policies are mandatory. It Is also used in trade finance in situation where the seller or exporter, as an insured party, transfers claims to the financing bank as the recipient of losses. The transfer of proceeds from an insurance contract might include two 'unilateral contracts':

  1. with the first authorization, the insured entitles the insurance company to provide compensation to the bank, and
  2. with the second authorization, it authorizes the bank to approve this compensation.

Many countries demand insurance contracts to be in writing and to be approved by the prior written consent of the insurer. The policyholder is obligated to disclose and report and to pay an insurance premium and is required to notify the assignee (bank) of any modifications in the terms and conditions of insurance following the assignment of the rights under the policy.

A claim for reimbursement or the events and conditions relating to the occurrence of an event giving rise to damage shall normally be dealt with exclusively between the insurance company and the insured. The insured is required to lodge a claim, whereas the revenues from his rights under the insurance contract are transferred directly to the lending bank. The lending bank may obtain payment of compensation but only when the event causing the loss occurs directly from the insurer and not through a party.

Examples of Assignment of insurance

  • Transferring a life insurance policy to a beneficiary. This type of assignment would take place when the policy owner wishes to transfer the rights and benefits of the policy to another individual, such as a spouse or child.
  • Assigning a policy to a trust. This type of assignment is used when a policy owner wishes to transfer the rights and benefits of the policy to a trust fund. This can be used for tax or estate planning purposes.
  • Assigning a policy to a financial institution. This type of assignment is used when a policy owner wishes to transfer the rights and benefits of the policy to a financial institution. This can be used as collateral for a loan or other financial products.
  • Assigning a policy to a business partner. This type of assignment is used when a policy owner wishes to transfer the rights and benefits of the policy to a business partner in order to provide financial protection for the business.

Advantages of Assignment of insurance

  • Assignment of insurance ensures that the policyholder's rights and benefits are transferred to a new owner.
  • It can be used to transfer the ownership of the insurance policy to a family member, spouse or friend.
  • It allows a policyholder to receive a lump sum or cash payment in exchange for their policy.
  • It provides the new owner with the full rights and benefits of the policy, including the right to receive the death benefit.
  • It can be used to give the new owner the ability to access the cash value of the policy.
  • It can provide financial security to the policyholder and the new owner, as the policy remains in force after the transfer.
  • It can provide tax benefits to both the policyholder and the new owner.
  • It provides an opportunity for estate and financial planning.
  • It allows for flexibility in terms of who the policyholder can assign the policy to and the terms of the assignment.

Limitations of Assignment of insurance

The assignment of insurance is a document that creates the transfer of ownership rights of a life insurance policy into effect. However, there are certain limitations to the assignment of insurance that should be taken into account:

  • First, the assignment of insurance is generally not valid if the policyholder has not obtained consent from the insurer.
  • Second, the assignee must be a person or an entity that is legally capable of entering into a contract.
  • Third, the policyholder may not assign the policy to a creditor in order to avoid paying the debt.
  • Fourth, the assignment of the policy must be done in writing, and it must be signed by both the policyholder and the assignee.
  • Fifth, the assignment of insurance does not alter the terms or conditions of the policy.
  • Sixth, the assignment of insurance will not take effect until the insurer acknowledges and approves of the assignment.
  • Lastly, the assignment of insurance is not valid if the policyholder is attempting to transfer ownership to himself or herself.

Other approaches related to Assignment of insurance

The Assignment of insurance is a document that creates the transfer of ownership rights of a life insurance policy into effect. Other approaches related to this document are:

  • Beneficiary Designation: Beneficiary designation is a method of appointing another individual to receive the proceeds from an insurance policy or other financial asset in the event of the insured’s death.
  • Assignment of Benefits: Assignment of benefits is a document signed by the insured to allow for the payment of the insurance benefits to another individual, such as a doctor or specialist, who is providing medical services.
  • Assignment of Rights: Assignment of rights is a document that transfers certain rights of the insured to another individual, such as the right to sue or the right to receive payment for damages.
  • Insurance Portability: Insurance portability is the transferability of an insurance policy from one insurance company to another.

In summary, Assignment of insurance is a document that creates the transfer of ownership rights of a life insurance policy into effect. Other approaches related to this document include beneficiary designation, assignment of benefits, assignment of rights, and insurance portability.


Assignment of insurance — recommended articles
Fixed and floating charge — Bankers lien — Mortgage deed — Satisfaction of mortgage — Indemnity bond — Spendthrift clause — Cash Collateral — Nominee shareholder — Special endorsement

References

Author: Patrycja Róg

Retrieved from "https://ceopedia.org/index.php?title=Assignment_of_insurance&oldid=89434"