Life insurance policy uses restricted by recent change

Life insurance policies have always been regarded as measures of security for the insured and their dependants, safeguarding their interest in the event of death as a result of a covered contingency. Subject to compliance with the terms and conditions of the policy, the insurer is, on the death of the insured or maturity of the policy, required to pay the sum assured to the person entitled to it under the policy.

Due to the certainty of the payment of an assured sum on a predetermined date, life insurance policies are increasingly being used for the purposes of creating security or trusts, being transferred for consideration and forming the subject of bequests, like other forms of property.

Right to assignment

In India prior to the enactment of the Insurance Act, 1938, the provisions relating to assignment of life insurance policies were contained in sections 130 to 132 and 135 of the Transfer of Property Act, 1882 (TOPA). Under these provisions, the transfer of an insurance policy was treated as a transfer of an actionable claim and all rights and remedies of the transferor would vest in the transferee on the transfer being made as per the provisions of TOPA, whether notice of such transfer had been given or not. After the Insurance Act was enacted to regulate the business of insurance in India, an exception was incorporated in section 130 of TOPA expressly excluding transfers of life insurance policies.

Aakanksha Joshi is an associate partner and Siddharth Walawalkar is an associate at Economic Laws Practice. This article is intended for informational purposes and does not constitute a legal opinion or advice.