What does hypothecation mean? Does it apply to personal accident policies too?—Senthil
Hypothecation refers to pledging an asset to a lender. In the event of a default, the lender can confiscate the asset to recover their dues. When an asset is mortgaged, its insurance policy can carry a ‘bank clause’ with the name of the lender. In case the asset is damaged, the lender would have the first right to the claim. If the loan is regularly serviced, then the lender can give a no-objection certificate for the claim to be paid to the insured.
