Transfer of insurance policies may now be allowed only on certain conditions. The Insurance Regulatory Development Authority plans to introduce guidelines soon on transfer (also called assignment) of insurance policies after the Insurance Act is amended. The amendments to the Act are being discussed by a group of ministers on insurance.

Assignment is a method by which a policy holder transfers his rights in the life insurance policy to another entity. The entity can be a family member, relative, friend, a lending institution like a bank or a non-banking finance company.

"According to the KP Narsimhan Committee report, assignments should be permitted only in certain conditions. For example, a terminally ill person who cannot pay the premium and needs money should be allowed to transfer the policy. For prescribing such conditions, the Insurance Act needs to be amended. The authority will introduce assignment guidelines once this is done," said CS Rao, chairman, IRDA.

The Narsimhan committee report states, "One additional Sub-Section should be inserted in Section 38 dealing with assignments to empower the Authority (Insurance Regulatory and Development Authority) to restrict or regulate certain types of assignments. This is called for to nip in the bud the potential for trading in life insurance policies by certain agencies, and to prevent moral hazards associated with such trading in life insurance policies."

So far, Insure Policy Plus Services is the only company that trades in such policies.

Despite the fact that a Bombay High Court judgment has legalised such trade, the new guidelines, when they come, may act as a dampener for companies wanting to get into the business.