Insurance is a legal agreement between you (the policyholder) and the insurance agency (insurer). It’s important to try to understand all the technical terms used in your insurance policy, as they can have a big impact on your coverage. A pre-owned life insurance policy or assignment of life insurance policy is a common example of insurance jargon.
So, what is a pre-owned life insurance policy? What are the things to consider while investing in a pre-owned life insurance policy? How many types of pre-owned life insurance policies are there? Well, worry not as today we will be discussing all that in this article. So let’s start without any further ado.
What is a Pre-Owned Life Insurance Policy?
In simple terms, a pre-owned life insurance policy refers to a life insurance policy which is already owned by someone, as the name tells you. It is a great investment option for anyone who is looking to invest in something which would yield better returns than the typical FDs and that is also tax-free. You can do this through policy assignment and this is the right platform for you to grab this opportunity.
This transfer of ownership of a life insurance policy from the original policyholder (also known as the “assignor”) to a new owner (also known as the “assignee”) is called an assignment. To assign a life insurance policy, the policyholder must sign an assignment form and provide it to the insurance company.
The insurance company will then update its records to reflect the change in ownership. The assignee becomes responsible for paying the premiums and will be entitled to receive the death benefit when the original policyholder dies.
This transfer of ownership can be done for a variety of reasons, such as to raise funds, to provide financial security for a loved one, or to protect against the risk of the policy being cancelled or lapsing.
It’s important to note that not all life insurance policies are assignable, and the terms of the policy will determine whether the assignment is allowed. It’s also important to carefully consider the consequences of assigning a life insurance policy, as it may have tax and other financial implications.
Who Can Offer Pre-Owned Life Insurance Policy?
Any person or entity that owns a life insurance policy has the right to make a policy assignment. In simple terms, only the owner of the life insurance policy can offer the policy to someone else. The policy owner must follow the procedure for making a policy assignment as specified in the policy or by state law.
Policy assignments are typically made by filling out a form provided by the insurer and submitting it to the insurer, along with any required documentation. Once finished, the assignment will be formally recorded by the insurer.
Types Of Assignment For A Life Insurance Policy:
There are two different types of assignments available to the owner of the life insurance policy. Let’s discuss them in detail below:
1. Absolute assignment
An absolute assignment is a type of policy assignment in which the policy owner transfers complete ownership of a life insurance policy to another person or entity. This means that the policy owner gives up all rights and interests in the policy, and the policy becomes the property of the assignee.
Now the assignee will have the right to change the beneficiaries or make other changes to the policy, as well as the obligation to pay premiums and maintain the policy in force. An absolute assignment is a permanent transfer of ownership, and the policy owner cannot cancel the assignment or reclaim ownership of the policy.
2. Conditional assignment
A conditional assignment is a type of policy assignment in which the policy owner transfers ownership of a life insurance policy to a person as collateral for a loan or other debt. In a conditional assignment, the policy owner remains the insured person, and the policy remains in force as long as the policy owner continues to pay premiums and meet the policy’s requirements.
In a conditional assignment, the policy owner grants the creditor the right to receive the policy’s death benefit if the policy owner fails to pay the debt. The creditor has no other rights or interests in the policy, and the policy owner retains the right to change the beneficiaries or make other changes to the policy.
Some Important Things To Keep In Mind While Investing In A Pre-Owned Life Insurance Policy
Some things to consider when deciding whether to get a pre-owned life insurance policy include:
- Interest and Returns: A pre-owned life insurance policy may be a useful way to provide solid 8-12 per cent interest returns. While most of Indians have a mentality to invest in FDs and Gold Investment which give a return of merely 5-7 per cent, a pre-owned life insurance policy is a great way to get higher returns for the same amount of investment.
- Flexible Investment: Investing in a pre-owned life insurance policy allows you to choose the policy that fits best with your investment amount and the duration for which you are ready to invest. You can decide and set your maturity period along with different payout options. These include whether you want a lumpsum amount or a regular income.
- Tax Free Investment: While there are several other types of investments, most of them come with a tax deduction when the maturity period hits. However, the returns that you get after investing in a pre-owned life insurance policy are completely tax-free. You don’t have to pay any kind of tax to the government.
- Guaranteed Returns: There are several types of investments in the market like Gold and Stocks which might give you similar returns but they depend on the market performance. On the other hand, when you invest in a pre-owned life insurance policy, you get the option to earn fixed and guaranteed returns on your investment along with non-guaranteed and market-linked returns.
- Risk Factor: You might be thinking that all these advantages must come with a lot of risks. But let me clear this out to you that investing in a pre-owned life insurance policy is as safe as a bank deposit with very less risk and high returns.
Documents Required For Life Insurance Policy Assignment
The specific documents required for a life insurance policy assignment will depend on the type of assignment and the requirements of the insurer and the law. In general, the following documents may be required for a policy assignment:
● A completed policy assignment form: This form, which is typically provided by the insurer, will include information about the policy owner, the assignee, and the terms of the assignment.
● A copy of the life insurance policy: The policy owner will need to provide a copy of the policy to the assignee and the insurer.
● Address proof and PAN card: The assignee may need to provide proof of their identity.
● Any other required documentation: Depending on the circumstances of the assignment.
So is it a wise option for me to get a pre-owned life insurance policy?
If you have accumulated a good amount of wealth in your life and want to invest in something which would give you timely guaranteed returns that are better than the FDs with a negligible risk factor, then investing in a pre-owned life insurance policy would be a wise decision.
