Principal, LifeNet Insurance Solutions, Redmond, WA
A life insurance assignment means that the death benefit is "assigned" or transferred for a period of time to either an individual or institution. For example, one might assign benefits to a bank or other lender to protect against the insured's premature death. Usually, this assignment would be revoked once the underlying risk has been eliminated.
There are two types of assignment relative to life insurance.
1) Absolute assignment. This is when the owner of the policy transfers ownership to another person, including all the rights to change the policy. E.g. An absolute assignment might be used when parents have life insurance on their children, and wants their children to assume ownership of their own policies when they become adults.
2) Collateral assignment. This is when a life insurance policy is used as temporary security for a loan. An assignment form usually is attached to the life insurance policy, authorizing the lender to collect the amount owed to them, should the insured person (borrower) pass away. The remainder goes to the Insured's beneficiary named on the policy.
Great question! An "assignment" allows you to promise over the benefits of your policy. there are a couple of reasons why you might want to do this. Most commonly, you've purchased to policy for a child who now is well enough off to be able to care for themselves and can assume responsibility for the policy and its payments. You would assign the ownership of the policy to them, and at that point they take over the payments, and you relinquish any rights to the policy, beneficiary choice, etc. Another popular reason is to ensure that your funeral arrangements are what you wish for them to be. You can go to some funeral homes, and " prepay"for your service and the things needed for your burial. You will need to take your beneficiary along, as they will need to sign also, but when the time comes, the funeral home is paid out of the policy, and there are no unpleasant "hat passing" problems. If you would like more information, please contact me, I'm happy to help. Thanks for asking!
There are actually two common but different ways to assign life insurance. The first way to assign is with assigning the beneficiary for a temporary purpose. An example would be a financial institution loaning a substantial amount of money may require a person to assign them as beneficiary until the loan is repaid. Once this loan is repaid the assignment of beneficiary would go back to the original beneficiary, unless specifically changed again by the policy owner.
The second common practice of assignment of life insurance is to assign a new owner of a policy. This is most common with cash value life insurance which a parent or grandparent purchased on a minor child. A minor cannot own a policy with financial decisions, so an adult, usually parent or grandparent, will be owner until the child becomes an adult. The assign is made from the parent or previous owner to the insured child as the new owner.
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1) Absolute assignment. This is when the owner of the policy transfers ownership to another person, including all the rights to change the policy. E.g. An absolute assignment might be used when parents have life insurance on their children, and wants their children to assume ownership of their own policies when they become adults.
2) Collateral assignment. This is when a life insurance policy is used as temporary security for a loan. An assignment form usually is attached to the life insurance policy, authorizing the lender to collect the amount owed to them, should the insured person (borrower) pass away. The remainder goes to the Insured's beneficiary named on the policy.
The second common practice of assignment of life insurance is to assign a new owner of a policy. This is most common with cash value life insurance which a parent or grandparent purchased on a minor child. A minor cannot own a policy with financial decisions, so an adult, usually parent or grandparent, will be owner until the child becomes an adult. The assign is made from the parent or previous owner to the insured child as the new owner.