Banking · Legal Aspects of Banking
When a bank accepts Life Insurance Policies as collateral for a demand loan, the security is created through a specific legal process. Under current Indian banking regulations and practices, which of the following is the most accurate requirement for the bank to effectively protect its interest against the policy proceeds?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The bank must obtain a power of attorney from the borrower to withdraw the surrender value only after the account is classified as a non-performing asset.
- 2A simple deposit of the physical policy document with the bank is sufficient to create an equitable mortgage over the policy proceeds.
- 3The policy must be assigned in favor of the bank and the assignment must be registered in the books of the insurance company to be legally valid.✓
- 4The bank must be named as the primary nominee in the policy document at the time of issuance by the insurer.
Correct answer
The policy must be assigned in favor of the bank and the assignment must be registered in the books of the insurance company to be legally valid.
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