Every LIC policy should have a nominee or assignee — but they are NOT the same. Mixing them up is one of the most common reasons for delayed claims in India.
Nomination — The Default
When you buy an LIC policy, you fill in a nominee on the proposal form. The nominee is the person who receives the policy's maturity, survival or death proceeds if the policyholder dies. It takes one form field and can be changed any time during the policy's life (Form 3750).
Key Points About Nomination
- Nominee is a trustee — they hold the money for the legal heirs
- Nomination does NOT transfer ownership of the policy
- Multiple nominees can be specified (with percentage share)
- If a nominee is a minor, an appointee must be named
- Nominee can be changed at any time by writing to LIC
Assignment — Full Ownership Transfer
Assignment is a legal transfer of the policy to another person. The assignee becomes the owner of the policy — they can take loans against it, change nominees, and even surrender it. Assignment is done via a stamped assignment deed and registered with LIC.
When to Assign a Policy
- You borrow money and the policy is the collateral
- You sell the policy to a third party (rare)
- You transfer ownership to a family trust or HUF
- You want your spouse to fully own the policy for tax/estate planning reasons
Tax Implications — Watch Out
Assignment has serious tax consequences:
- If premium paid by the original policyholder exceeds ₹25,000/year and the assignee is a relative, the assignment is treated as a "gift" and is not taxable in the hands of the assignee
- If the assignee is a non-relative, the assignment can be treated as a transfer and attract clubbing provisions
- Always consult a CA before assigning a high-value policy
Practical Recommendation
For most Indian families:
- Keep the policy in your name
- Add your spouse as nominee (with 100% share)
- Add an alternate nominee (e.g., child or parent) in case the primary nominee predeceases you
- Avoid assignment unless there's a clear legal/financial need