A life insurance policy is legally the property of the policyholder. As such, the policyholder has certain rights in regards to the affairs of this property, including the ability to sell or assign the benefits of the plan to a third party.
For example, the interest of the policyholder in the life insurance plan is the ultimate payment of a death benefit. As this occurs after some period of time, normally a period of many years or decades, the policyholder has the right to benefit from their policy immediately should they require financial assistance. As such, the policyholder (assignor) is entitled to sell his plan to a third party, who would become the assignee and receive all benefits of being the new policyholder.
Not all assignments require a sale, in some cases a policyholder may gift his policy to another party. A husband may assign his policy to his wife, for example. However the assignment occurs, there are a number of conditions which should be understood in relation to assigning the rights to a Hong Kong Life Insurance plan.
Assignments under Hong Kong life insurance plans happen in two ways.
The first way a policy can be assigned is for it to be an Absolute Assignment. This means that the transfer is permanent and the assignee becomes the new policyholder perpetually.
The second way a policy can be assigned is as a Collateral Assignment, where the transfer is temporary and the policy is normally used as security for a loan which was not provided by the insurance company. In this case the assignee is only able to receive the loan amount plus any interest from the policy in the event of the insured’s death.
In order for either type of assignment to be undertaken it must first be ensured that the rights of any named beneficiaries under the policy at the time of the assignment are not violated. This means that, in the event of a Beneficiary being named an Irrevocable Beneficiary they would not be removed from the policy. Additionally, the assignment must not be for any illegal purposes, such as money laundering.
The first point to understand with assigning life insurance is that an insurance company is not obligated to act in accordance with an assignment until it has received written notice of the assignment. In fact, many Hong Kong Life Insurance plans will require a copy of the assignment agreement be provided as proof.
When choosing to assign a policy it is important to realize that it is not the insurance company’s role to validate the assignment – the insurer will not tell you if assigning your policy is the right move. Consequently, it is always a good idea to consult a legal professional before assigning your life insurance policy in order to confirm validity.
Finally, the assignee (the party to whom the policy is assigned) has rights to the policy which are secondary to the insurance company. This means that if any outstanding premiums are owed, or there are outstanding loans, these are taken out of the total policy benefit before any distribution is made to the assignee. As such, the assignee receives the Net Policy Proceeds and not the full amount.
If you would like to receive free advice for life insurance in Hong Kong, or if you would like to learn more about assignments under a Hong Kong life insurance plan, please complete the short form at the top of this page. Once you have completed your quotation request an expert CCW Global insurance broker will contact you directly to further discuss your coverage requirements.
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