Property and Casualty Insurance Practice Exam

What does the transfer of rights and duties condition, also known as the assignment clause, state regarding policy rights?

1. The insured's rights can be freely transferred without consent

2. The insured's rights can only be transferred with written consent

3. Rights can be transferred automatically upon death

4. The insured's rights are transferable under any condition

The correct answer is: The insured's rights can only be transferred with written consent

The assignment clause, commonly referred to as the transfer of rights and duties condition, primarily establishes that an insured person must obtain written consent from the insurer before transferring their rights under the insurance policy. This condition is crucial for maintaining the integrity and understanding of the insurance relationship, as it ensures that insurers can evaluate the risks associated with whom they are insuring. When a policyholder wishes to assign their rights—whether it’s to another individual, corporation, or entity—the insurer needs to assess the new party's risk profile and qualifications. This helps prevent potential abuse of the policy or transfer to someone who may pose an increased risk that the insurer is unwilling to accept. While there are instances, like a death scenario, where rights may transfer automatically (such as a life insurance policy passing to a beneficiary), in general practice, the requirement for written consent is a standard stipulation in most policies. This ensures clarity and reduces the potential for disputes regarding the terms and obligations of the insurance contract.