Assignment of policy means transferring the rights and benefits of an insurance policy from the original policyholder (assignor) to another person or entity (assignee).

This is commonly done in life insurance, especially when taking a loan. The policy is assigned to the lender (like a bank)as security. If something happens to the policyholder, the insurer pays the outstanding loan amount to the lender first.

Key points:

• Requires a written request or agreement submitted to the insurer
• Once assigned, the assignee gets the right to receive policy benefits
• Governed in India by Section 38 of the Insurance Act, 1938

Types of assignment:

• Absolute Assignment: Full transfer of all rights to the assignee
• Conditional Assignment: Transfer happens only under certain conditions

A man in Delhi took a ₹50 lakh life insurance policy and later applied for a home loan. The bank asked him to assign the policy as security. He submitted the required documents to the insurer, and the policy was assigned to the bank.

A few years later, he passed away. The insurer paid ₹32 lakh (outstanding loan) directly to the bank. The remaining ₹18 lakh was then given to his family after the assignment was removed.

• 1938 – Legal Framework in India
The Insurance Act, 1938 (Section 38) set the rules for assigning life insurance policies.

• 1950s – Common Banking Practice
Life insurance policies began to be widely used as collateral for loans.

• 1980s–1990s – Standardization
Banks and financial institutions globally formalized assignment procedures in lending documentation.