Life insurance policies are long-term contracts and the benefits are more complicated as they are dependent on the happenings of some pre-defined insured events. The contingent nature of the benefits makes it all the more important to clearly define the beneficiaries. Nomination and assignment are the tools conferred upon the policyholders to effectively manage the benefits accruing under a life insurance policy.

Nomination is a right that is given to the life insurance policyholder to appoint a person or persons to receive the benefit under the policy in case it becomes a death claim. Simply put, if a person who is insured dies, the person in whose favour the nomination is effected, is entitled to receive the policy proceeds. The person in whose favour the nomination is effected is termed as 'nominee'. Policy proceeds under a death claim typically comprise the sum assured and the bonuses accrued, if any. For unit-linked plans, it fetches the market value of units and the sum assured.

A life assured, who age is above 18 years, can make nomination. Nomination ensures smooth transfer of policy proceeds when the life assured is not around. Nomination is a part of life insurance proposal. While applying for life insurance, one can give the details of nominee in the proposal itself.

The details of the nominee will typically include full name, age, nominee’s address and the relationship of Nominee with the life assured. One can have multiple persons as nominees and can also specify their shares of the policy proceeds in percentage terms under Section 39 of Insurance Act, 1938, deals with such nomination.

The policyholder can change nomination as many times as he wants. The same can be done using a 'change of nomination form' from the life insurance company. The nominee himself cannot influence the policy. In the currency of the policy and the lifetime of the life assured, the nominee has a little role to play. The nominee comes into the picture only after the death of the life assured, where he can claim the benefits under the policy.

On the other hand, the assignment is a transfer of rights, title and interest of the life insurance policy to a person or persons. The 'Assignor' is the policyholder who transfers the title, and 'assignee' is the person who derives the title from the assignor. The assignment is of two types i.e. conditional and absolute. An absolute assignment is done for the consideration of money.

One can typically come across an assignment where the policyholder is trying to use the life insurance policy as collateral against a loan he intends to raise. However, one must note that the assignment must be in writing and a notice to that effect must be given to the insurer.

The assignee acquires the complete title of the policy and can sue under the policy. He can further assign the policy and can surrender the policy if he so desires. The assignment once effected cannot be cancelled. In case of death of the absolute assignee the rights under the policy delve on the legal heirs of the assignee. It can only be reassigned under section 38 of Insurance Act deals with assignment.