What is the difference between Nomination and Assignment?

Nomination and assignment are commonly heard terms associated with life insurance. Both nomination and assignment relate to benefits a third person shall derive from the insurance but are unique and distinct from one another. Nomination signifies the appointment of a person known as the nominee, who is designated to receive the proceeds from the insurance policy upon the policyholder’s demise. Assignment on the other hand is the legal concept where the rights and benefits of the policy are transferred to another person who is known as the assignee.
 

What is Nomination?

Nomination is the act of designating the name of a person under a life insurance to receive the benefits and/or proceeds of the insurance upon the demise of the policyholder. It acts as a tool to enable the person chosen by the policyholder to recover the proceeds of the insurance. The concept of nomination is closely associated to the policy and a nominee is appointed at the time of acquiring the policy and can be changed as many times as the policyholder wishes during its term. Nomination is almost always done in favour of close relatives of the policyholder.
 

What is Assignment?

Assignment is a legal concept whereby all the rights, interests, title etc. are transferred by the policyholder to another person who is legally entitled to then receive all benefits associated with such policy. It is either carried out in favour of close relatives or any other person against suitable consideration. Assignment can be done by way of an endorsement on the policy itself or also by way of a separate legal document recording the fact of such assignment under signature of the parties. Further, a successful assignment also requires attestation by a competent witness and it also grants a right to sue under the policy to the person in favour of whom assignment is made out.
 

Difference between Nomination and Assignment

Nomination and assignment are distinct from one another and the following are the differences between the two concepts:

1.    Nomination relates to the designation of a person by the policy holder who is to receive the benefits of the policy on the demise of the policyholder. Assignment on the other hand signifies the legal transfer of all the benefits and title of the policy to another person.
2.    Designating a nominee by way of nomination does not require attestation. On the other hand, assignment requires attestation to attain recognition under law.
3.    Nomination is a natural consequence of a life insurance which does not involve any consideration. Assignment on the other hand may involve a consideration against designating an assignee to whom the title and consequent benefits of the insurance are transferred.
4.    Another distinguishing factor between nomination and assignment is the rights available to the assignee as opposed to the nominee. Where assignment grants the assignee a right to sue under the policy, the same right is not available to a nominee.
5.    Nomination serves the purpose of enabling the beneficiary of the policy to receive the benefits of such policy upon the policyholder’s demise. On the other hand, assignment enables the policyholder to transfer title and all associated interests in favour of a person either for a consideration or for any other reason.
6.    Where on one hand the nomination can be amended or even revoked multiple times without any restriction, assignment on the other hand can only be revoked once or twice during the term of the policy.
7.    Nominees are often the close relatives of the policyholder nominated to receive the benefits thereof, whereas assignees are not just close relatives but are also often parties outside the family for any number of reasons.