Co-Founder, Coastal Financial Partners Group, California
The pledge or assignment of all or some a life insurance policy might be made as collateral security. The policyowner has the right to do this. There are many scenarios and planning techniques in which assignments are made. To the extent that some amount of the death benefit was assigned to a third party, that party would receive that amount as a death benefit if death occurs during the existence of the agreement. Normally the assignment would be revocable meaning the policyowner can cancel the agreement at some point. But some estate planning methods involve irrevocable assignments.
Policy assignments are also part of the process when a policyowner exchanges one life insurance policy with another. In order to ensure there is no gap in coverage during the process, an absolute assignment of the existing policy to the insurer that will issue the new policy is made. Completion of an exchange agreement with the insurer that will issue the new policy follows and then the new policy is issued before the old policy is surrendered.
Syndicated Financial Columnist, Host of the weekly talk show Steve Savant's Money, the Name of the Game, Scottsdale Arizona
Generally, assigning life insurance means the policy is a either collateral assignment or cash value restrictive endorsement. Some policy owners use the cash values and/or death benefit as collateral for banks or institutional recourse assets. Cash value restrictive endorsement is usually a temporary control of the policy as a pledge like vesting in a executive bonus plan.
Life insurance policies are often assigned for loan protection or to fund funerals, among other things.
Collateral assignment still gives you some control in your policy, but allows a lender to repay your loan from your life insurance proceeds if you should pass away before the loan is paid off. Whatever does not go to your loan repayment, goes to the beneficiary of your choice.
For funerals, the assignment may also collateral assignment, but if prepaying a funeral for Medicaid spend down, it must be irrevocable.
When a life insurance policy is assigned, it means that all the rights of owning the policy are transferred to someone else. An absolute assignment will usually involve the entire policy, and be permanent. A collateral assignment is usually connected to a loan, and the rights to the policy are ended when the loan is paid off. Also, the beneficiary of the policy with collateral assignment gets the excess beyond what must go to pay off the remainder of the loan.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
When a policy is assigned it means that someone has first rights over the proceeds. In the event of death their right would be exercised and only the balance of the proceeds would be paid to the beneficiary. This is most commonly seen when life insurance is used to secure a loan.
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Policy assignments are also part of the process when a policyowner exchanges one life insurance policy with another. In order to ensure there is no gap in coverage during the process, an absolute assignment of the existing policy to the insurer that will issue the new policy is made. Completion of an exchange agreement with the insurer that will issue the new policy follows and then the new policy is issued before the old policy is surrendered.
Collateral assignment still gives you some control in your policy, but allows a lender to repay your loan from your life insurance proceeds if you should pass away before the loan is paid off. Whatever does not go to your loan repayment, goes to the beneficiary of your choice.
For funerals, the assignment may also collateral assignment, but if prepaying a funeral for Medicaid spend down, it must be irrevocable.