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There are a number of rights that the policy owner has over their life insurance and one is ability to name the beneficiaries. However, in addition to naming the beneficiaries, another right is to assign the death benefits or the cash values of the policy to another person or an assignee. This is called a collateral assignment of life insurance and is a practice that has been recognized for decades.

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What is Collateral Assignment of Life Insurance?

Basically it is a written document where the owner of the policy along with an assignee tells the life insurance company that an interest in the death benefits and the cash value of the policy itself has been assigned to a particular person. Once the notification is sent in, the company must protect the rights of the assignee by providing them with the cash value of the policy or the death benefits over that of the beneficiary.

This new status does not oblige the assignee to pay any of the premiums or the loan interest that may be due. However, if the assignee does make payments, then the cash value or death benefits may be adjusted to reflect this influx of money to the policy itself.

Why Choose Collateral Assignment for the Life Insurance Policy?

While there are a number of reasons for a policy holder to take this particular action, the most assignment of life insurance policy as collateral is for security against a loan or liability. The life insurance collateral assignment is generally for a pre-set amount where the assignee takes what is needed and then leaves the rest to the beneficiary.

For example, if the total benefits are $50,000 the assignee may only take what is owed which may be from $1 up to the full amount and then leaves the rest for the beneficiary. The same is true if the policy matures and can be cashed out where the assignee deducts the amount they are owed leaving the rest to the policy holder.

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Collateral Assignment Terms:

The collateral assignment of life insurance form must be signed by the policy holder and the person who is the assignee. Any conditions must be included in the form or accompanying forms in order to be valid.

Using life insurance collateral loan, the borrower must be the owner of the policy itself, but not necessarily the one who is insured. Plus, the policy must be kept current in terms of the life of the loan or debt with the owner paying the premiums promptly on a month to month basis. However, virtually any type of life insurance policy will qualify for collateral assignment.

It should be noted that insurance companies must be notified of the collateral assignment of life insurance for the policy itself, but otherwise they remain at a distance when it comes to the terms between the policy holder and the assignee. In addition, if the loan or debt has been resolved before the policy reaches maturity where it can be cashed out or if the policy holder should pass away, then the assignee can be removed and the life insurance reverts to its normal state.

Hope this piece of information is good enough for your basic understanding about collateral assignment life insurance. For more legitimate information, ask your provider who may have special requirements or terms for their policyholders.


Meet Aaron H., a senior life insurance agent from California with 15+ years of experience. With a major in finance, excellent analytical and communication skills, and a passion for helping clients find personalized solutions, Aaron is a trusted advisor in the industry. He stays up-to-date on the latest trends and developments by attending webinars and workshops, reading industry blogs, and writing informative blog posts on this website. Aaron also has a keen understanding of SEO and online marketing, which he uses to help his clients reach a wider audience and get the coverage they need. He cherishes spending quality time with his wife, two children, and elder parents.