This is a very important question. Many companies and organisations provides loan to their employees for their various needs to support them to full fill their needs relates to medical , marriage, house construction etc.
Company gives the loans to the employees keep in view various criteria like Tenure of service, employees salary , his or her general feed back etc. accordingly provides loan.
Many times company provides huge and big loans out of natural and moral ground like the current situation of Covid -19 pandemic
Normally procedure to recover the loan from employee is by way of equally monthly installments. But the scenario became difficult when a huge loan amount taken by an employee and he or she unfortunately dies in between and loans repayment is pending. Also there is no Gratuity or any other savings with the company from which this loan can be recover.
In this situation the best solutions for the companies and organisations to follow the procedures which follows by the bankers and financial institutions who provides the loans to the customers. That is
policy assignment.
Company can purchase a LIC or any other Insurer a Term Plan policy equivalent to the loan amount and get assign by the employee ( Policy holder ) in favour of the Company. This is called Absolute Assignment
For example if an employee take a loan of Rs. 10 Lacs. in that case he will take a policy on his life of Rs. 10 Lacs (premium born be him this is mutual understanding between employer and employee).
After policy taken this would be Assign in favour of the Company.
Here Employee will called as Assigner and Company will called as Assignee
An assignment clause will be documented and submitted to the LIC of India.
In which mentioned how much loan taken etc.
If unfortunately if the employee (policy holder – Assigner) died before repay the loan the balanced loan amount will be recover from the Policy amount taken and gives to the Company (Assignee) and if any rest amount left after loan re-pay will be disburse in favour of legal heir of the policy holder.
“When the policy holder assign a policy , he loses all control on the policy. It is no longer his property. It is now the assignee’s property whether the policyholder is alive or dead, the assignee alone will get the policy money from the insurance company.”
There is one more type of Assignment this is called
Conditional Assignment
It would be useful where the policyholder desires the benefit of the policy to go to a near and dear relative or else in the event of his earlier death. It is usually effected for consideration of natural love and affection. It generally provides for the right to revert the policyholder in the event of the assignee predeceasing the policyholder or the policyholder surviving to the date of maturity.
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