Assignment of insurance

From CEOpedia | Management online
Assignment of insurance
See also

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.


Author: Patrycja Róg