The Life Insurance Corporation of India will soon file a special leave petition before the Supreme Court to prevent trading in life insurance policies.

Last month, LIC had lost a case in the Bombay High Court to bar Insurance Policy Plus Services, a Mumbai-based insurance policies trader, from trading in life insurance policies.

A division bench of Justice FI Rebello and Justice Anoop Mohta had ruled that insurance policies were 'movable property' and can be traded in by a policyholder.

The high court had given six weeks to LIC for filing a SLP. Though LIC allows a policyholder to assign (read transfer of rights) his policy to a bank or financial institution for mortgage or to a family member or a friend, it is against assigning the policy to an organisation for trading purposes.

T S Vijayan, chairman of LIC, said, "We are not against assignment for valuable consideration as banks do not pass the rights to another entity. Similarly, we are not against assignment out of love and affection."

Typically, trading is done on lapsed policies where investors, such as IPPS, pay the policyholder an amount which is higher than the surrender value paid by the insurer. This enables the policyholder to raise funds at a short notice and is a profitable business in the US and UK.

Assignment or transfer is a method by which a policyholder can transfer his rights to another entity. The entity pays the premium and enjoys the bonuses, benefits in the form of tax exempted returns and enjoys the survival benefits on maturity of the policy.

The assignee entity can be a family member, relative, friend, a bank, financial institution or a private entity. Assignment under valuable consideration is done when the policyholder mortgages his policy with a bank or an institution. Assignment under love and affection is done for a family member, relative or a friend.

The policyholder can opt for an absolute assignment, which involves transferring the total rights to the bank or relative or a conditional assignment that is about placing a condition that in case the holder is able to repay the loan amount, the policy rights are transferred back to him.