The Life Policy as Property

In one line

A life policy is an asset: it can be assigned, nominated, mortgaged and put into a trust that puts the money beyond the assured's creditors.

In the wording a student can write in an exam: a policy of life insurance is a chose in action and therefore property; it may be transferred or assigned under section 38 of the Insurance Act, 1938, nominated under section 39, and charged as security; and where a married man effects a policy on his own life expressed on its face to be for the benefit of his wife, or of his wife and children or any of them, section 6 of the Married Women's Property Act, 1874 makes it a trust which is not subject to his control or to his creditors and does not form part of his estate.

Why a policy is property and a fire policy is not

A life policy accumulates value. The premium is level while the risk rises, so the early years overpay and a reserve builds up. Section 113 of the Insurance Act, 1938 turns that reserve into a surrender value the policyholder can realise. A fire policy has no reserve, no surrender value and nothing to transfer.

And a life policy is not a personal contract in the same sense. A fire insurer chose this insured, and the policy cannot be assigned without its consent, because the moral hazard changes with the owner. A life insurer has assumed a risk on a life that does not change when the policy changes hands, so the policy is freely assignable subject to section 38.

Three uses follow, and they are the shape of this chapter. Transfer, to raise money or to make a gift. Direction of the proceeds, so that the right person is paid without a succession dispute. And protection, so that the family is paid before the creditors.

Transfer: assignment under section 38

An assignment transfers the policy itself, so that the assignee becomes entitled to the benefit and may sue upon it. By section 38(1) it may be made only by an endorsement on the policy or by a separate instrument, signed by the transferor and attested by at least one witness, stating the fact of the transfer, the reasons, the assignee's antecedents and the terms.

By section 38(5) it is complete on execution but is not operative against the insurer, and confers no right to sue, until written notice is delivered to the insurer at the place where the policy is serviced. By section 38(6) the date of that notice fixes priority between competing assignees.

By the Explanation to section 38(8) every assignment is deemed absolute unless the endorsement expressly says it is conditional under section 38(10). An absolute assignee may sue, take a loan on the policy and surrender it without the assignor's consent.