Assignment of a policy

What is assignment of an insurance policy?

Assignment is the transfer of the rights in an insurance policy from the policyholder (the assignor) to someone else (the assignee). After a valid assignment, the assignee is the person the insurer deals with and pays, to the extent of the assignment. The most common use in India is as security for a loan: a home loan borrower assigns a life policy to the bank, or a borrower assigns a policy to the insurer itself when taking a policy loan. Policies are also assigned within families, to a business, or as part of a key person arrangement.

How assignment works under Section 38

Section 38 of the Insurance Act, 1938, as substituted with effect from 26 December 2014, sets the rules. As of October 2026 they are:

• Form. Assignment can be whole or partial, with or without consideration. It must be made by an endorsement on the policy or by a separate instrument, signed by the assignor (or an authorised agent) and attested by at least one witness. The document must state the fact of assignment, the reasons, the assignee's antecedents and the terms.
• Notice to the insurer. The assignment is complete between the parties once executed, but it binds the insurer only after written notice, with the endorsement, the instrument or a certified copy, reaches the insurer. Where the insurer has several offices, the notice must go to the office servicing the policy.
• Priority. If there are several assignments, the order in which the notices reached the insurer decides who is paid first. Disputes about priority go to IRDAI.
• Acknowledgement and fee. The insurer records the assignment and, on request, gives a written acknowledgement, which is conclusive evidence that it received the notice. Under the 2024 policyholder regulations, the fee for this cannot exceed ₹100, and no other fee may be charged for an assignment. Insurers' citizens' charters commit to registering an assignment within 7 days.
• Refusal. The insurer may decline to act on an assignment if it has sufficient reason to believe it is not bona fide, is against the policyholder's interest or public interest, or is for trading in policies. It must record its reasons and tell the policyholder within 30 days of the notice. The aggrieved person can appeal to IRDAI within 30 days of that letter.
• Absolute and conditional. Every assignment is treated as absolute unless the endorsement expressly makes it conditional. A conditional assignment can provide that the money returns to the policyholder or nominee if the assignee dies first, or if the insured survives the term. A conditional assignee cannot take a loan on the policy or surrender it.
• Rights of an absolute assignee. From the date of notice, the absolute assignee takes the policy subject to existing liabilities and equities, and can sue, borrow against or surrender it without the assignor's consent.
• Partial assignment. The insurer's liability to the assignee is limited to the assigned amount, and the policyholder cannot assign the remainder again.

Effect on nomination. Under Section 39(4), an assignment cancels the nomination, except where the policy is assigned to the insurer or a lender as security for a loan. In that case the nominee's rights are cut only to the extent of the lender's interest, and a cancelled nomination revives when the policy is reassigned after repayment.

At claim time. The 2024 master circular asks the nominee of an assigned policy to check that the assignment is valid, confirm the loan outstanding, and agree that the insurer pays only that amount to the lender, with the rest paid straight to the nominee. In group credit-linked covers, the insurer must pay the master policyholder only the loan outstanding on the date of the event and pay the balance to the member's nominee.

What assignment means for distribution

• Credit-linked sales need clear disclosure. When a policy is bundled with a loan, tell the borrower whether it will be assigned, to whom, and what the family will receive after the loan is cleared. Unclear assignment is a common source of claim complaints in bancassurance.
• Prefer a loan assignment over an absolute one. For security, lenders only need an assignment to the extent of their dues. An absolute assignment hands over all rights, including surrender.
• Reassign when the loan closes. Customers often repay a home loan and forget the policy is still assigned. A reassignment request on loan closure restores the policyholder's control and the nomination.
• Watch for policy trading. Offers to buy policies or to "take over premiums" in exchange for an assignment are exactly what Section 38 lets insurers refuse. Distributors should not facilitate them.
• Keep paperwork in the servicing office's format. A notice sent to the wrong branch or without the certified instrument does not bind the insurer.