Life policies: assignment, nomination, claims, and the LIC and GIBNA Acts

1. Assignment: section 38

A life policy is a chose in action and can be transferred. Section 38 of the Insurance Act, as substituted by the Insurance Laws (Amendment) Act, 2015, governs the transfer.

• Form (s.38(1)). A transfer or assignment, wholly or in part, with or without consideration, may be made only by an endorsement on the policy or by a separate instrument, signed by the assignor or his authorised agent and attested by at least one witness, stating the fact of assignment, the reasons for it, the antecedents of the assignee and the terms.
• Insurer may decline (s.38(2)–(4)). The insurer may refuse to act on an assignment that it has sufficient reason to believe is not bona fide, not in the interest of the policyholder or in the public interest, or is for the purpose of trading in policies. It must record reasons and communicate them within thirty days of notice; the aggrieved person may approach the Authority within thirty days.
• Effect (s.38(5)). The assignment is complete on execution, but does not bind the insurer, and gives the assignee no right to sue, until written notice with the endorsement or instrument (or a certified copy) is delivered to the insurer.
• Priority between competing assignees follows the order in which notices reach the insurer.
• Rights of the assignee. From receipt of notice the insurer recognises the assignee as the person entitled to the benefit; he takes subject to all equities and liabilities to which the assignor was subject and may sue in his own name.
• Conditional assignment. An assignment may provide that it is inoperative or that the interest passes to another on a specified event (such as the assignee dying before the insured).

Two kinds are usual: absolute assignment, which passes all rights (by gift or for value), and conditional assignment, commonly to a bank as security for a loan, with reassignment on repayment. Marine policies are assigned under s.52 of the Marine Insurance Act, by endorsement or other customary manner, before or after loss.

2. Nomination: section 39

• Who and when (s.39(1)). The holder of a policy on his own life may, when effecting the policy or at any time before it matures, nominate one or more persons to receive the money in the event of his death. If a nominee is a minor, he may appoint a person to receive the money during minority.
• How (s.39(2)). By incorporation in the policy or by endorsement communicated to and registered by the insurer. It may be cancelled or changed by a further endorsement or by will before maturity, but the insurer is protected if it pays bona fide to the registered nominee before notice of change.
• Assignment cancels nomination (s.39(4)), except an assignment to the insurer for a policy loan, or an assignment to another lender as security, which affects the nominee only to the extent of the lender’s interest; on reassignment the nomination revives.
• Who gets the money. If the policy matures in the insured’s lifetime, or all nominees die first, the money goes to the policyholder or his heirs (s.39(5)); if a nominee survives the life assured, to the nominee (s.39(6)).
• Beneficial nominee (s.39(7)–(8)). Where the policyholder nominates his parents, spouse, children, or spouse and children, or any of them, the nominee is beneficially entitled to the amount, unless it is proved that the policyholder could not have conferred such title. If such a nominee dies after the insured but before payment, the amount goes to the nominee’s heirs. These rules apply to policies maturing after the 2015 Act came into force (s.39(10)), and do not defeat creditors (s.39(9)).
• Married Women’s Property Act policies (s.39(12)). Section 39 does not apply to a policy under s.6 of that Act, which already creates a trust.

3. Nominee and heirs: the case law

In Sarbati Devi v. Usha Devi, 1983 INSC 192, (1984) 1 SCC 424, the dispute was between the nominee under a life policy and the heirs of the insured. The Supreme Court held that a nomination under the old section 39 only indicates the hand authorised to receive the money and gives the insurer a valid discharge. It does not confer ownership. The nominee holds the money for those entitled under the law of succession. The same view was taken of savings certificates in Vishin N. Khanchandani v. Vidya Lachmandas Khanchandani, 2000 INSC 400, (2000) 6 SCC 724.

Section 39(7), added in 2015, changes this for the close family. Where the nominee is a parent, spouse or child, he or she takes beneficially, not as trustee. For any other nominee Sarbati Devi still governs. In Shakti Yezdani v. Jayanand Jayant Salgaonkar, 2023 INSC 1076, the Court applied the same principle to shares: a nominee under the Companies Act does not take the shares to the exclusion of the legal heirs. The contrast is useful in an answer: where Parliament wants a nominee to be owner, it says so in terms, as s.39(7) now does for a policyholder’s parents, spouse and children.

4. Amount recoverable and persons entitled to payment

• On death within the term: the sum assured plus vested bonuses, less any policy loan and unpaid premium (within days of grace).
• On maturity: the sum assured (or the balance in a money-back plan) plus bonuses, to the policyholder or assignee.
• On surrender: the surrender value under s.113.
• Paid-up policy: the reduced paid-up sum.
• Accident or disability benefit: the extra amount under the rider.

Persons entitled, in order: the assignee (if the policy is assigned); otherwise the nominee; otherwise the policyholder or, after his death, his legal representatives, on production of a succession certificate, probate or letters of administration where the insurer requires it; for a Married Women’s Property Act policy, the trustees for the wife and children.

5. Settlement of claim and payment of money

The claimant gives notice of death with the death certificate, the policy, proof of title and, for early claims, medical and employer’s certificates. The insurer may investigate early claims (within three years, because only then can it question the policy under s.45). IRDAI regulations on protection of policyholders’ interests fix time limits for settling or repudiating claims and require interest above the bank rate for delay. A repudiation must be in writing with reasons (s.45(2) and (4) require the grounds and materials to be communicated). The claimant may then go to the insurer’s grievance cell, the Insurance Ombudsman, or the Consumer Commission (Unit IV). Section 47 of the Insurance Act lets the insurer pay the money into court where there are competing claimants or no proper discharge can be obtained.

6. The Life Insurance Corporation Act, 1956 (overview)

• Purpose. To nationalise life insurance. The Ordinance of 19 January 1956 took over management; the Act transferred the life business of about 245 Indian and foreign insurers and provident societies to the Life Insurance Corporation of India, established on 1 September 1956.
• Nature. A statutory corporation with perpetual succession and a common seal, capable of suing and being sued; members appointed by the Central Government, with a Chairperson and Managing Directors.
• Functions (s.6). To carry on life insurance business in India and abroad and to develop it to the best advantage of the community, including investment of funds and allied business.
• Government guarantee (s.37). The sums assured by LIC policies and bonuses are guaranteed by the Central Government, a feature private insurers do not have.
• Monopoly ended. LIC’s exclusive privilege was removed when the IRDA Act, 1999 opened the sector.
• Listing. Amendments made by the Finance Act, 2021 restructured LIC’s capital to allow a public issue; the Government sold part of its holding in 2022 and LIC’s shares are listed.
• 2025. The Sabka Bima Sabki Raksha Act substituted s.18(2) (zonal offices at Mumbai, Kolkata, Delhi, Kanpur and Chennai and others as the Corporation thinks fit) and provided that funds and surplus of foreign branches are governed by the law of the foreign country (ss.24(3) and 28(4)).

LIC is regulated by the IRDAI like any other insurer, with provisions of the Insurance Act applied to it by s.43 of the LIC Act.

7. The General Insurance Business (Nationalisation) Act, 1972 (overview)

• The Act took over 107 Indian and foreign general insurers from 1 January 1973 and grouped them into four companies: National Insurance, New India Assurance, Oriental Insurance and United India Insurance, with the General Insurance Corporation of India as holding company.
• The 2002 amendment ended GIC’s holding role; the four companies became independent, and GIC became the national re-insurer (GIC Re).
• The General Insurance Business (Nationalisation) Amendment Act, 2021 removed the requirement that the Central Government hold at least 51% of the equity of these companies, permitting disinvestment.
• Because these companies were State-owned, the Supreme Court has treated them as “State” under Article 12, bound to act fairly even in contractual matters: Biman Krishna Bose v. United India Insurance Co. Ltd., 2001 INSC 337, (2001) 6 SCC 477.

How this is examined

“Analyse the law relating to assignment and nomination of life policy” (June 2025): sections 1 to 3, ending with the difference between the two. “Discuss the composition, powers and functions of the Life Insurance Corporation of India” (February 2025): section 6. Short note on assignment of insurance policies (February 2025): section 1. In any answer, a one-line contrast helps: assignment transfers title and cancels nomination; nomination transfers nothing during the insured’s life and can be changed at will.