Kathmandu. A contract agreement is a type of contract agreement that the insured buys from life insurance companies. In which the insured will bear the risk as per the terms and conditions for payment of the premium and will return the amount to the insured after the completion of the term of the policy.
Generally, there are only two parties in an insurance policy (including the proposer) and the insurer. But in some cases, there is also the involvement of a third party. It includes not only the insured and the insurer, but also a third party such as a bank, employer, moneylender, a cooperative or microfinance or any other institution.
In the life insurance policy issued for the security of the loan, it is stated that the principal and interest of the loan will be paid to the lending institution under the general terms and if the excess amount is due, it will be paid to the insured or his/her legal heir or designee. This type of insurance policy is widely used by microfinance companies and cooperatives while giving loans to members.
There is no provision for the involvement of third parties in life insurance policies other than term insurance issued for the purpose of loans and the involvement of third parties is legalized through absolute assignment or endorsement.
The insured transfers the right to the policy wholly or partially to the third party by signing the signature of the insured in the presence of a witness. Such an authorization or confirmation is recognized in the same way as the original contract. It is valid until the insured submits a written application and revokes the authorization. Even if the legal heir of the insured’s family claims the case, the first right belongs to the party who has received the claim.
In the event of the death of the insured or the expiry of the term of the insurance or in case of payment of the claim, the first right of the person or organization who has obtained the authority of the insurance policy is the first right. The insured should pay the insured to the heir of the insured family only if the additional amount is due after the payment has been made. Otherwise, it doesn’t matter.
Legal system:
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There is a clear provision in Section 127 (3) of the Insurance Act. The sub-section states that if the insured has authorised any insurance policy, the authority shall be reserved to the authorized person to receive the amount for insurance claim up to the extent of such authorization. In this way, the Act has secured the priority of the party receiving the authority.
How banks are using the authorization:
Banks and financial institutions have also provided life insurance to the employees while providing home loan or any other loan facility. And instead of recovering the principal and interest of the loan regularly, they deduct it from the salary of the employee and deposit the insurance amount regularly. After the completion of the insurance term, the principal and interest amount are deducted from the amount received in the lump sum. Employees will get 60 percent of the bonus amount and the remaining 40 percent will be distributed by the employer banks. This facility will make the employee loyal to the organization, there is no stress of the employee having to repay the principal interest of the loan and there is no risk of defaulting on the loan, so it is very useful for both parties.
