assignment life insurance

Collateral assignment of life insurance

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Secured loans are often used by individuals needing financial resources for any reason, whether it’s to fund a business, remodel a home or pay medical bills. One asset that may be used for a secured loan is life insurance. Although there are pros and cons to this type of financial transaction, it can be an excellent way to access needed funding. Bankrate’s insurance editorial team discusses what a collateral assignment of life insurance is and when it might—or might not—be the best loan option for you.

What is collateral assignment of life insurance?

A collateral assignment of life insurance is a method of securing a loan by using a life insurance policy as collateral . If you pass away before the loan is repaid, the lender can collect the outstanding loan balance from the death benefit of your life insurance policy . Any remaining funds from the death benefit would then be disbursed to the policy’s designated beneficiary(ies).

Why use life insurance as collateral?

Collateral assignment of life insurance may be a useful option if you want to access funds without placing any of your assets, such as a car or house, at risk. If you already have a life insurance policy, it can be a simple process to assign it as collateral. You may even be able to use your policy as collateral for more than one loan, which is called cross-collateralization, if there is enough value in the policy.

Collateral assignment may also be a credible choice if your credit rating is not high, which can make it difficult to find attractive loan terms. Since your lender can rely on your policy’s death benefit to pay off the loan if necessary, they are more likely to give you favorable terms despite a low credit score.

Pros and cons of using life insurance as collateral

If you are considering collateral assignment, here are some pros and cons of this type of financial arrangement.

It may be an affordable option, especially if your life insurance premiums are less than your payments would be for an unsecured loan with a higher interest rate.
You will not need to place personal property, such as your home, as collateral, which you would need to do if you take out a secured loan. Instead, if you pass away before the loan is repaid, lenders will be paid from the policy’s death benefit. Any remaining payout goes to your named beneficiaries.
You may find lenders who are eager to work with you since life insurance is generally considered a good choice for collateral.
The amount that your beneficiaries would have received will be reduced if you pass away before the loan is paid off since the lender has first rights to death benefits.
You may not be able to successfully purchase life insurance if you are older or in poor health.
If you are using a permanent form of life insurance as collateral, there may be an impact on your ability to use the policy's cash value during the life of the loan. If the loan balance and interest payments exceed the cash value, it can erode the policy's value over time.

What types of life insurance can I use as collateral for a loan?

You may use either of the main types of life insurance— term and permanent —for collateral assignment. If you are using term life insurance, you will need a policy with a term length that is at least as long as the term of the loan. In other words, if you have 20 years to pay off the loan, the term insurance you need must have a term of at least 20 years.

Subcategories of permanent life insurance, such as whole life , universal life and variable life, may also be used. Depending on lender requirements, you may be able to use an existing policy or could purchase a new one for the loan. A permanent policy with cash value may be especially appealing to a lender, considering the added benefit of the cash reserves they could access if necessary.

How do I take out a loan using a collateral assignment of life insurance?

If you already have enough life insurance to use for collateral assignment, your next step is to find a lender who is willing to work with you. If you don’t yet have life insurance, or you don’t have enough, consider the amount of coverage you need and apply for a policy . You may need to undergo a medical exam and fill out an application .

Once your policy has been approved, ask your insurance company or agent for a collateral assignment form, which you will complete and submit with your loan application papers. The form names your lender as an assignee of the policy—meaning that they have a stake in its benefits for as long as the loan exists. You will also name beneficiaries or a single beneficiary, who will receive whatever is left over from the death benefits after the loan is repaid.

Note that you will need to stay current on your life insurance premium payments while the collateral assignment is active. This will be stated in the loan agreement, and failure to do so could have serious repercussions.

Alternatives to life insurance as collateral

If you are considering a collateral assignment of life insurance, there are a few alternative funding options that might be worth exploring. Since many factors determine each option, working with a financial advisor may be the best way to find the ideal solution for your situation.

Unsecured loan

Depending on your situation, an unsecured loan may be more affordable than a secured loan with life insurance as collateral. This is more likely to be the case if you have good enough credit to qualify for a low-interest rate without having to offer any type of collateral. There are many different types of unsecured loans, including credit cards and personal loans.

Secured loan

In addition to life insurance, there are other items you can use as collateral for a secured loan . Your home, a car or a boat, for example, could be used if you have enough equity in them. Typically, secured loans are easier to qualify for than unsecured, since they are not as risky for the lender, and you are likely to find a lower interest rate than you would with an unsecured loan. The flip side, of course, is that if you default on the loan, the lender can take the asset that you used to secure it and sell it to recoup their losses.

Life insurance loan

Some permanent life insurance policies accumulate cash value over time that you can use in different ways. If you have such a policy, you may be able to partially withdraw the cash value or take a loan against your cash value. However, there are implications to using the cash value in your life insurance policy, so be sure to discuss this solution with a life insurance agent or your financial advisor before making a decision.

Home equity line of credit (HELOC)

A home equity line of credit (HELOC) is a more flexible way to access funds than a standard secured loan. While HELOCs carry the downside of risking your home as collateral, you retain more control over the amount you borrow. Instead of receiving one lump sum, you will have access to a line of credit that you can withdraw from as needed. You will only have to pay interest on the actual amount borrowed.

Frequently asked questions

What is the best life insurance company, what type of loans are collateral assignments usually associated with, what are other common forms of collateral, what are the two types of life insurance assignments.

What is collateral insurance and how does it work?

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Definitions

What Is a Collateral Assignment of Life Insurance?

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

A collateral assignment of life insurance is a conditional assignment appointing a lender as an assignee of a policy. Essentially, the lender has a claim to some or all of the death benefit until the loan is repaid. The death benefit is used as collateral for a loan.

The advantage to using a collateral assignee over naming the lender as a beneficiary is that you can specify that the lender is only entitled to a certain amount, namely the amount of the outstanding loan. That would allow your beneficiaries still be entitled to any remaining death benefit.

Lenders commonly require that life insurance serve as collateral for a business loan to guarantee repayment if the borrower dies or defaults. They may even require you to get a life insurance policy to be approved for a business loan.

Key Takeaways

The borrower of a business loan using life insurance as collateral must be the policy owner, who may or may not be the insured.
The collateral assignment helps you avoid naming a lender as a beneficiary.
The collateral assignment may be against all or part of the policy's value.
If any amount of the death benefit remains after the lender is paid, it is distributed to beneficiaries.
Once the loan is fully repaid, the life insurance policy is no longer used as collateral.

How a Collateral Assignment of Life Insurance Works

Collateral assignments make sure the lender gets paid only what they are due. The borrower must be the owner of the policy, but they do not have to be the insured person. And the policy must remain current for the life of the loan, with the policy owner continuing to pay all premiums . You can use either term or whole life insurance policy as collateral, but the death benefit must meet the lender's terms.

A permanent life insurance policy with a cash value allows the lender access to the cash value to use as loan payment if the borrower defaults. Many lenders don't accept term life insurance policies as collateral because they do not accumulate cash value.

Alternately, the policy owner's access to the cash value is restricted to protect the collateral. If the loan is repaid before the borrower's death, the assignment is removed, and the lender is no longer the beneficiary of the death benefit.

Insurance companies must be notified of the collateral assignment of a policy. However, other than their obligation to meet the terms of the contract, they are not involved in the agreement.

Example of Collateral Assignment of Life Insurance

For example, say you have a business plan for a floral shop and need a $50,000 loan to get started. When you apply for the loan, the bank says you must have collateral in the form of a life insurance policy to back it up. You have a whole life insurance policy with a cash value of $65,000 and a death benefit of $300,000, which the bank accepts as collateral.

So, you then designate the bank as the policy's assignee until you repay the $50,000 loan. That way, the bank can ensure it will be repaid the funds it lent you, even if you died. In this case, because the cash value and death benefit is more than what you owe the lender, your beneficiaries would still inherit money.

Alternatives to Collateral Assignment of Life Insurance

Using a collateral assignment to secure a business loan can help you access the funds you need to start or grow your business. However, you would be at risk of losing your life insurance policy if you defaulted on the loan, meaning your beneficiaries may not receive the money you'd planned for them to inherit.

Consult with a financial advisor to discuss whether a collateral assignment or one of these alternatives may be most appropriate for your financial situation.

Life insurance loan (policy loan) : If you already have a life insurance policy with a cash value, you can likely borrow against it. Policy loans are not taxed and have less stringent requirements such as no credit or income checks. However, this option would not work if you do not already have a permanent life insurance policy because the cash value component takes time to build.

Surrendering your policy : You can also surrender your policy to access any cash value you've built up. However, your beneficiaries would no longer receive a death benefit.

Other loan types : Finally, you can apply for other loans, such as a personal loan, that do not require life insurance as collateral. You could use loans that rely on other types of collateral, such as a home equity loan that uses your home equity.

What Are the Benefits of Collateral Assignment of Life Insurance?

A collateral assignment of a life insurance policy may be required if you need a business loan. Lenders typically require life insurance as collateral for business loans because they guarantee repayment if the borrower dies. A policy with cash value can guarantee repayment if the borrower defaults.

What Kind of Life Insurance Can Be Used for Collateral?

You can typically use any type of life insurance policy as collateral for a business loan, depending on the lender's requirements. A permanent life insurance policy with a cash value allows the lender a source of funds to use if the borrower defaults. Some lenders may not accept term life insurance policies, which have no cash value. The lender will typically require the death benefit be a certain amount, depending on your loan size.

Is Collateral Assignment of Life Insurance Irrevocable?

A collateral assignment of life insurance is irrevocable. So, the policyholder may not use the cash value of a life insurance policy dedicated toward collateral for a loan until that loan has been repaid.

What is the Difference Between an Assignment and a Collateral Assignment?

With an absolute assignment , the entire ownership of the policy would be transferred to the assignee, or the lender. Then, the lender would be entitled to the full death benefit. With a collateral assignment, the lender is only entitled to the balance of the outstanding loan.

The Bottom Line

If you are applying for life insurance to secure your own business loan, remember you do not need to make the lender the beneficiary. Instead you can use a collateral assignment. Consult a financial advisor or insurance broker who can walk you through the process and explain its pros and cons as they apply to your situation.

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What Is a Life Insurance Assignment?

Conditional Assignment

With a conditional assignment, although you transfer your life insurance policy’s ownership rights to another party, the assignment stipulates that if a certain specified event occurs, the assignment can be suspended or revoked in whole or in part. The event in question cannot be something that you can cause to happen. If you assigned your life insurance policy to a business partner, for example, with the explicit agreement that on the death of that business partner the assignment is revoked, that assignment is deemed conditional.

Absolute Assignment

When you make an absolute assignment, the rights, title and interest in the life insurance policy pass on to another party without the possibility of reversal. The assignment provides security to the assignee in that you can no longer make decisions regarding the policy that would jeopardize it, such as taking out a policy loan or withdrawing cash values.

Secured Loan

If you own a business, and you wish to take out a loan for your business, the lender may require you to purchase life insurance on your own life as security for the loan. Initially you make the request for the insurance. Once the policy is approved and issued, you make an assignment to the bank. The bank now controls the decisions and can make changes to the policy, including naming itself as beneficiary.

Collateral Loan

If you own a life insurance policy with cash values, you might wish to access those cash values to increase your income flow. Withdrawals from life insurance policy cash values can result in taxes due and might reduce your death benefit. An alternative is to assign the life insurance policy to a lender in exchange for a line of credit or regular loan payments. These loans are generally not taxable, and you can typically borrow up to a stated maximum percentage of the cash value. Since the policy is assigned to the bank, your failure to pay the premiums on the policy will cause the bank to call the loan, cancel the insurance policy and use the cash values as payment of the loan. If you maintain the policy in force until your death, the bank is generally the beneficiary of the tax-free policy proceeds up to and including the outstanding amount of the loan, with any remaining policy proceeds paid tax free to your named beneficiary.

AXA Life: Know Your Insurance

Philippe Lanctot started writing for business trade publications in 1990. He has contributed copy for the "Canadian Insurance Journal" and has been the co-author of text for life insurance company marketing guides. He holds a Bachelor of Science in mathematics from the University of Montreal with a minor in English.

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What Is A Collateral Assignment?

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Life insurance is often the key to securing a loan.

Frequently, lenders request a collateral assignment of life insurance as a requirement for loan approval.

Your bank, or lending institution, has an interest in guaranteeing the loan they provide will be paid back , regardless of your circumstances.

Think of an assignment of life insurance as collateral as a promise to your lender.

It’s the lender’s job to assess your ability to repay a loan, and the promise of a life insurance policy can make all the difference.

Here, we will cover life insurance as a collateral assignment in its entirety so that you can make an educated decision moving forward.

Definitions
Requirements
How To Decide

What Is Collateral Assignment Of Life Insurance?

A conditional assignment in which the lender is a recipient of the death benefit (or cash value) of a life insurance policy for an amount equivalent to the balance of the loan.

Let’s take a look at a couple of definitions related to collateral assignments:

Collateral – something offered (in this case, life insurance) as a guarantee of loan repayment if you default on your loan.
In other words, your lender no longer qualifies for the death benefit or cash value of your policy once your loan is paid off.

SBA loans , structured settlement buyouts, and bank loans commonly require life insurance as collateral.

Requirements For Assignment Of Life Insurance As Collateral

There are two primary requirements to secure a loan through the assignment of a life insurance policy:

The life insurance company must approve the assignment (most do).
The lender must accept the life insurance policy as collateral.

Process Of Securing Collateral Assignment

The steps to securing your loan through the assignment of life insurance as your collateral are typically uncomplicated:

Purchase life insurance – be sure to name primary and contingent beneficiaries .
A collateral assignment is accomplished via a collateral assignment form . Your life insurance carrier typically provides the form.
Note – a collateral assignment can only be processed after your policy’s issuance.

Key Details

List beneficiaries other than your lender (for example, your spouse). Your lender should NOT be your primary beneficiary.
As a collateral assignee, your lender will ONLY receive the amount of life insurance proceeds which covers the balance (principal plus interest ) of your loan, should you pass away prior to payoff.
The remaining death benefit (or cash value amount if utilizing a permanent life insurance policy) will go to your designated beneficiaries.

Important Note!

Collateral assignments are first-in-line for your life insurance proceeds. Your beneficiaries are second-in-line.

Said differently, your policy’s proceeds go to your lender first, in the event of your death.

Once your loan is satisfied, your beneficiaries receive the remaining death benefit.

Types Of Life Insurance Used As Collateral

Just about any form of life insurance can qualify for collateral assignment as long the lender accepts it as collateral.

You will want to select the best life insurance policy to fit your needs.

Consider the following types:

It’s common to be in a hurry to secure a loan.

No exam life insurance often takes weeks off of the application process, making this type of life insurance ideal for a collateral loan assignment.

What is it? Life insurance issued without a medical examination of the insured.

No exam life insurance is available as term life insurance, universal life, and whole life insurance.

Is No Exam right for me?

There are a number of instances in which we recommend no exam life insurance:

You need life insurance, fast . Some carriers will issue a no exam policy within minutes .
You have a few health conditions . If you are in less than excellent health, you may qualify for better rates by skipping the paramedical exam.
You haven’t seen a doctor in a number of years . It’s possible something might pop-up on your blood work that you are unaware of, like high cholesterol or elevated blood sugar.
The idea of needles and nurses makes you wince . Yep, just go ahead and skip dreaded needle if you want.

Term life insurance is popular because you can purchase a large amount of coverage with cost-effective premiums.

What is it? Life insurance issued for a specific period of time. For example, 10 or 20 years .

Term life insurance provides coverage for when you need it most. For instance, you likely need protection while you are raising a family and working.

Premium payments and death benefit are typically level (they stay the same) for the amount of time chosen.

Is Term right for me?

Consider purchasing term if:

You need a life insurance policy with a larger face amount.
Your life insurance needs are for a particular amount of time.
You are on a budget.

Whole life insurance , also called permanent life insurance, lasts your whole life.

What is it? Lifelong life insurance protection which includes a cash value component.

Whole life insurance, as long as you make your premium payments, will not expire.

Your premium payments are typically level, and can even go away in later years.

Is Whole right for me?

Whole life insurance can make sense under certain circumstances:

You want a cash value component to your policy.
The policy loan features interest you.
Life insurance coverage which does not expire is ideal for you.
You plan to give a financial gift via life insurance.

Universal life insurance (UL) is a specific type of permanent life insurance.

What is it? A form of whole life insurance with flexible premium payments and an investment piece.

Universal life insurance is known for its adaptability.

Is Universal right for me?

Universal life insurance includes unique characteristics:

Market performance affects the investment component of your policy.
Your premium payment amounts can be flexible. They are dependent on your life insurance needs and the needs of the policy.
The death benefit is often adjustable.
Your policy is permanent and lasts your whole life.

Guaranteed Universal

Guaranteed Universal life insurance (GUL) is ideal for someone who is looking for an affordable life insurance policy which would likely last your entire life.

What is it? GUL is a hybrid of term and permanent life insurance products.

Guaranteed Universal is popular because it’s a cost-effective way to secure life insurance coverage until you reach a certain age, often over age 100.

Is Guaranteed Universal right for me?

Also called No Lapse , Guaranteed Universal life insurance has many appealing features:

Policy length is determined by an age limit, not term length. For example, your GUL policy can last up to age 121.
Your policy will likely be more expensive than term life insurance but cost less than whole life insurance.
There is often not a cash value component.
Your premium payments and death benefit are level.

You have the option to utilize the cash value of a permanent life insurance product (Whole Life, Universal Life, sometimes Guaranteed Universal Life) for collateral assignment. That way, your beneficiaries receive all of the death benefit.

Keep in mind , your access to the cash value of your policy will commonly restricted if you have a collateral assignment attached to it.

You will want to go about securing your collateral assignment in the best possible way and avoid potential pitfalls.

Pay close attention to our list of important do’s and don’ts:

Purchase life insurance that is approved for collateral assignment
Name primary and contingent beneficiaries
Verify with your lender that the policy will qualify
After loan payoff, obtain a release of assignment from lender
Submit release of assignment to life insurance carrier

Don’t

Assign lender as primary beneficiary
Purchase a policy with a face amount that is less than your loan amount
Let your policy lapse
Lose the original policy
Lose track of repayment schedule

Commonly Asked Questions About Collateral Assignments

It depends. The amount of time it takes to secure your collateral assignment is dependent on the carrier, the type of life insurance policy, and your unique needs. For instance, if you purchase a no medical exam life insurance policy, the process will be much faster than if you participate in a paramedical exam (fully underwritten policy). Potentially, your collateral assignment could be in place within days, or it might take weeks.

Keep in mind, you DO NOT want to list your bank or lending institution as your primary beneficiary. Instead, name those you care about most, and depend on you financially, as your beneficiaries. That way, your lender – as a collateral assignee – only receives a death benefit amount that equals the balance of your loan. The remaining policy proceeds will go to your beneficiaries.

Not necessarily. In general, a life insurance purchase does not require you to have a stellar credit rating. In fact, qualifying for a loan usually has stricter credit score requirements . If, however, you are going through bankruptcy proceedings , or you have recently, your life insurance application will likely be affected. Speak to an independent life insurance agent for information about bankruptcy and life insurance.

In a word, don’t. Plan on your lender being notified if you miss a premium payment. If you encounter financial hardship and find difficulty in making your premium payments, contact your lender right away to discuss options. Should you default on your life insurance policy, your lender could consider your loan to be in violation of the contractual provisions. Your lender may make premium payments on your behalf to keep the policy in force. Your loan will (almost always) have the payments made for you tacked on to the loan balance. If you are utilizing the cash-value of a whole life insurance policy as collateral, your lender will likely have the ability to pull funds from the cash-value to make your premium payments.

Yes. If you would like to use a different life insurance policy as a collateral assignment, speak to a life insurance agent about the process. As long as the other life insurance policy qualifies, you can change your collateral assignment. Remember, there are two primary requirements for the assignment of life insurance as collateral: 1. Your carrier must agree to the collateral assignment of the life insurance policy. 2. The lender must approve the collateral assignment – meaning the policy needs to be for an appropriate amount and length of time .

No. You do not need to be the insured on the life insurance policy. You do, on the other hand, need to be the policy owner . The policy owner has control of the life insurance contract and has the ability to designate a collateral assignment. Often the insured and policy owner are the same person.

This type of collateral assignment is unique to employers and their key employees. Split dollar plans are not designed for individuals looking to secure a loan. Essentially, a collateral assignment under a split dollar structure allows an employer to loan money to a key employee to make premium payments on a life insurance policy. In turn, the employee assigns the life insurance policy as collateral for the loan. The intended result is to provide additional value to employees who are vital to a company’s success.

Yes. As long as your policy meets the requirements, multiple lenders can accept your policy as a collateral assignment. For example, let’s say you are in the process of securing loans through your bank and an additional lending institution. Your bank loan is for $50,000 and your lending institution loan is for $80,000. The term lengths on your loans are 10 years and 15 years, respectively. In this hypothetical, say you own a 20-year term life insurance policy for $250,000. Your policy is for an amount and term length that would satisfy the collateral needs of both loans. As long as the life insurance company and lenders agree, your policy can be used as a collateral assignment for the two loans.

Possibly. You will typically need written consent from your lender prior to taking out a loan. Remember, policy loans are available through whole life insurance. In essence, your lender must agree that the collateral assignment is not put in jeopardy as a result of a policy loan. You will want to contact your lender to discuss your options.

Contact your lender as soon as your loan is paid off. The lender will provide a formal release of collateral assignment form. The form surrenders their rights to your life insurance policy. You will submit the form to your life insurance carrier . That way, your beneficiaries will not encounter delays to your policy’s proceeds.

Is Collateral Assignment Right For Me?

The collateral assignment of life insurance DOES make sense if:

You are in the process of securing a loan with a collateral assignment stipulation.
You do not have cash reserves to use as collateral for loan approval.

The collateral assignment of life insurance does NOT make sense if:

Your loan can be approved without a collateral requirement.
Another acceptable (and preferred) form of collateral, like cash, is available.

Final Thoughts

There a number of important things you need to know if you are in the process of establishing a loan with a collateral assignment requirement:

Your life insurance carrier must approve the assignment, while your lender must accept the assignment.
Most types of life insurance policies qualify as collateral.
Your lender should be your collateral assignee , NOT your primary beneficiary.
A collateral assignment can take just a few days , however, it may require weeks, so plan accordingly.

Finally, the process of establishing a collateral assignment of life insurance is typically simple and straightforward, but feel free to ask someone for help.

Life insurance is an invaluable tool for securing an important loan.

Heidi Mertlich

Heidi Mertlich is the owner of NoPhysicalTermLife.com. She is an independent life insurance agent specializing in no medical exam life insurance. Heidi is also an author for LifeInsurancePost.com, an online community of life insurance experts.

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Collateral Assignment for Life Insurance: A Comprehensive Guide

When you apply for a loan, the lender wants to make sure you have the financial resources to repay your debt. In some cases, the underwriter may ask you to provide a form of collateral. This is typically something of value that you pledge to forfeit to the lender if you default on the loan.

Depending on your circumstances, you may be able to use your life insurance policy as a form of collateral. This could help improve your approval chances for a loan or a mortgage, but there are some important things to understand before utilizing it. Learn how collateral assignment in life insurance works, explore the upsides and downsides of choosing this option, and some alternatives you may want to consider.

What does it mean to have collateral assignment of life insurance.

Collateral assignment of life insurance allows the lender to be the primary recipient of your life insurance policy’s death benefit if you have an outstanding loan balance when you die. Some assignments also allow the lender to tap into the policy’s cash value if you default on your loan. While using life insurance as collateral does not prevent you from naming your own primary and contingent beneficiaries , it does mean that the lender is paid in full before anyone else. Once the loan balance is covered, your named beneficiaries receive whatever is left.

In some cases, collateral assignment allows the lender to take over your entire policy if you stop making payments on your loan. If you stop paying your policy premiums, the lender may also take over premium payments and add the cost to your principal balance. Collateral assignment can vary depending on the lender and the insurance carrier , so it’s important to carefully read all documents before signing any agreements.

When Is Collateral Assignment Used?

Although life insurance collateral can be used for many types of lending agreements, collateral assignments are commonly used for mortgages and business loans rather than for student loans or credit card debt. They are also not used for unsecured loans, as these types of loans do not require collateral.

It’s fairly common for a lender to request collateral assignment of whole life insurance and other types of permanent life insurance policies since they have a cash value that’s accessible at any time. This may allow the lender to access the cash value upon your default instead of only having protection when you die.

How Life Insurance Collateral Works

When you take out a loan with an assignment of life insurance, the application process is similar to the process for other types of loans. The main difference lies in the assignment of the insurance policy, which you can do by contacting the insurance carrier and requesting the required paperwork.

If you and your spouse co-own a life insurance policy, you must both agree to the assignment and be listed as co-assignors. If your spouse does not agree, you cannot use that policy as collateral. It’s also important to note that lenders generally limit the amount of your policy value that you can use for collateral. For example, you may only be able to use 50% to 90% of the policy’s cash value when you collateralize your loan. Each lender and insurance carrier may have different rules, so it’s important to confirm this before completing your application.

In some cases, you may also need to get permission from the life insurance company to use the policy as collateral. Once the request is approved and the paperwork completed, the lender can move forward with the underwriting process and either approve or deny your loan request.

When you’ve paid off your debt, you can contact your insurance carrier and let them know you need to release the collateral assignee for your life insurance. As long as your loan has been paid, the lender cannot make a claim against your policy, even if you forget to take this step. However, collateral assignments must be settled before funds are distributed to your beneficiaries, so completing this process can help your beneficiaries avoid unnecessary delays.

Term vs. Permanent Life Policies

Lenders generally prefer permanent policies for collateral assignment, but some may accept a term life policy as long as the insurance coverage term lasts at least as long as your loan term. Each lender is different, so you need to confirm the requirements when applying for your loan.

The lender may also prefer a permanent policy because it can provide access to its cash value. Since term policies have no cash value, there’s no recourse for the lender until you die and they’re able to access the policy’s death benefit.

Current vs. New Policies

Some lenders allow you to collaterally assign a life insurance policy you already have in place, while others may require you to take out a new policy. Your ability to use an existing policy also depends on whether the insurance company allows collateral assignment.

Some insurance companies also do not allow you to complete a collateral assignment during the application process. In this case, you need to finish the process of setting up your policy, then file paperwork to complete the life insurance assignment. Keep this in mind when determining your timeline to complete the required steps.

Assignees vs. Beneficiaries

When assigning a lender to our policy, you do not name the lender as your beneficiary . Instead, you name the lender as an assignee and designate your beneficiaries in the same way you would with a non-assigned life insurance policy.

If you die before you finish repaying your loan, the lender receives the outstanding loan balance. Your beneficiaries then receive the remainder of the death benefit. If you’ve named multiple beneficiaries, they each receive their designated percentage of the remaining balance.

Should You Consider Using Your Life Insurance as Collateral?

While using your life insurance as collateral may be an option for you, it’s important to carefully consider the pros and cons of doing so. This can help you determine whether it’s a good option for you or if you may want to consider an alternative.

Pros

If your bank requests a life insurance collateral assignment, you may consider agreeing based on the following advantages:

Improved loan approval odds: Assigning your life insurance policy as collateral may help you get approved for a loan so you can reach your financial goals, such as starting a business or buying a home.
Asset protection: When you use a life insurance policy as collateral, you’re not risking other assets, such as your home or retirement account.
Affordable rates: Due to the certainty collateral assignment adds to a loan application, lenders may be willing to offer lower interest rates on collateralized loans.
Tax benefits: When you use a life insurance policy as collateral, there are no tax implications. This may not be the case if you take out a policy loan or a withdrawal.

Cons

While collateral assignment may initially seem like a great idea, there are some potential drawbacks to consider before making your decision:

Estate planning issues: If you die before your loan is paid off, the collection of collateral could throw off your estate plan and leave your beneficiaries without the financial security you originally planned to provide.
Loss of control: When you use an insurance policy as collateral, you’re required to keep it in place until the loan is paid off. Otherwise, the lender could take out another policy on your behalf and add the premiums to the principal of your loan.
Limited access to cash value: Some forms of collateral assignment may limit your ability to access your policy’s cash value, which reduces your financial flexibility.
May require a new policy: Some lenders do not allow borrowers to use existing policies as collateral, and taking out a new policy requires time, effort, and additional expense.

Alternatives to Collateral Assignment

If you’re not sure that collateral assignment is the right option for you, then you might consider exploring some alternatives. Here are a few options that may help you get the cash you need.

Utilize a Life Insurance Cash Value Loan

Rather than assigning your policy to the lender, you could directly tap into your cash value by taking out a life insurance loan. However, to take advantage of this option, you need to have your policy in place long enough to build up sufficient cash value, which can take several years. When you die, your unpaid loan balance and interest charges are also deducted from the death benefit.

Cash Surrender

You may consider giving up your permanent life insurance policy and taking the cash surrender value . Before choosing this option, keep in mind that it requires canceling your policy, potentially leaving you without coverage or in need of a replacement policy. You may also be subject to penalties if your policy is still in the surrender period when you initiate the cancelation.

Take Out a Home Equity Loan

If you’re not comfortable using your life insurance policy as collateral, you may consider taking out a home equity loan instead. This type of loan uses your home as collateral rather than your life insurance policy. This may also be an option if you do not already have a life insurance policy in place or your lender requires you to take out a new policy and you have health issues that prevent you from being approved for life insurance coverage.

Take Out an Unsecured Loan

Unsecured loans are not backed by collateral. This could be an option if you do not want to take the chance of losing your current assets. However, keep in mind that unsecured loans may be harder to get and typically have higher interest rates than collateralized loans.

Take Out a Term Life Insurance Policy

In some cases, the lender may not require collateral assignment, but borrowers want to ensure their debts are paid upon their death. You can accomplish this by purchasing a term life insurance policy with a term that is equal to your loan term. This allows you to sidestep the collateral assignment process while still providing your heirs with the funds needed to pay off your remaining debt. The beneficiaries can also use any remaining death benefit as they see fit.

As you weigh your options, consider how each alternative fits with your current needs, risk tolerance, and comfort level.

Plan for your family’s future. Get a life insurance quote today.

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What Is Collateral Assignment of Life Insurance?

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Updated: December 14, 2023

How It Works
Overview of Application Process
Pros and Cons
Impact on Beneficiaries
Alternatives

How Collateral Assignment of Life Insurance Works

The collateral assignment allows you to use your life insurance policy as security for a loan. The process involves legally designating your policy as collateral, which means if you pass away before fully repaying the loan, the lender can claim the death benefit to cover the remaining balance. You start by choosing either a term policy or whole life insurance and then complete a collateral assignment agreement. This agreement is legally binding and sets the terms for the lender to access the death benefit .

For your beneficiaries, this arrangement means the death benefit they receive could be reduced. If you die with an outstanding loan balance, the lender is paid first from the policy's proceeds. Any remaining amount goes to your beneficiaries only after the loan is settled.

For example, a policyholder with a $500,000 policy was assigned as collateral for a $200,000 loan. If the policyholder dies before settling the loan, the lender will receive $200,000 from the policy's death benefit. Meanwhile, the remaining $300,000 gets disbursed to the policy's beneficiaries.

Applying for Collateral Assignment

Applying for collateral assignment is a process moderated by your life insurance company designed to secure loans using your life insurance policy as collateral. It involves a series of steps:

Obtain a Collateral Assignment Form

Request a collateral assignment form from your life insurance provider. This form is crucial for designating the lender as a beneficiary for the loan amount. Ensure you obtain the correct form, as forms vary based on policy type and insurer.

Fill Out the Form Correctly

Complete the form with accurate details, including policy number, loan amount and lender information. Pay close attention to all sections to avoid errors that could delay or invalidate the assignment. Incomplete or incorrect information can lead to processing delays or rejection.

Signed by Both Policyholder and Lender

Ensure both the policyholder and lender sign the form, confirming the agreement. This dual signature legally binds both parties to the terms of the collateral assignment. Any discrepancy in signatures may question the form's validity.

Submit Completed Form

Submit the signed form back to the insurance company for processing. Consider using a traceable delivery method for submission to confirm receipt. Delays in submission can impact the timeline of the loan approval process.

Await Approval or Rejection From Insurance Company

Wait for the insurer to review and approve or reject the collateral assignment. The insurer may request additional information or clarification, which can extend the approval timeline.

Receive a Letter of Acknowledgment

You and your lender will receive a letter of acknowledgment from the insurer if your collateral assignment application is approved.

Obtaining Required Documentation

The required documentation for collateral assignment of life insurance is straightforward. Typically, you'll need to provide two main types of documents:

Collateral Assignment Form: This form is critical because it officially transfers a portion of your life insurance policy benefits to the lender as collateral. It demonstrates to the lender that you have taken the requisite steps to secure your loan against your life insurance policy.
Original Life Insurance Policy and Proof of Loan: Lenders may require your original life insurance policy to ensure it is valid and enforceable. Proof of the loan agreement or obligation, such as a mortgage note or other loan document, is also commonly required. This establishes the legitimacy of your loan and substantiates the collateral assignment.

Pros and Cons of Collateral Assignment

Utilizing a life insurance policy for collateral assignment can offer a range of benefits and potential drawbacks. This method allows you to secure loans and is often safer than using physical assets as collateral. However, you should also note the inherent risks, primarily that the lender retains the first right to your policy’s death benefit upon your death.

Impact of Collateral Assignment on Beneficiaries

While the collateral assignment of life insurance has its benefits, it’s important to remember that it can impact the amount your beneficiaries receive. If you pass away with an outstanding balance on your loan:

Your Lender Will Be Paid First

In the collateral assignment arrangement, the lender is designated as the primary beneficiary for the outstanding loan amount. This means if you pass away before fully repaying the loan, the lender is entitled to receive payment from the death benefit first. The amount collected by the lender is limited to the remaining loan balance.

Any Remaining Death Benefit Will Be Disbursed to Your Beneficiaries

After the lender's claim is satisfied, the remaining death benefit is disbursed to your policy’s designated beneficiaries. The amount they receive depends on the loan balance at the time of your death. If the loan balance is substantial, your beneficiaries will receive significantly less than the policy's full death benefit.

Alternatives to Collateral Assignment

Alternatives to collateral assignment include personal loans , home equity loans , or surrendering the life insurance policy for its cash value. None of these options require using life insurance as collateral. Each option offers different benefits and risks compared to using life insurance as collateral.

These questions covers various topics related to collateral assignments, including the requirements, implications for beneficiaries and what happens under various scenarios.

These related sections offer additional insights into concepts and alternatives connected to collateral assignments and life insurance:

Using Collateral for a Personal Loan — This link explains how to use various types of collateral for securing a personal loan, providing a broader context to the specific use of life insurance as collateral.

Term vs. Permanent Life Insurance — This resource compares term and permanent life insurance, helping to understand which types of policies can be used for collateral assignments.

Permanent Life Insurance — This page details permanent life insurance, a type commonly used in collateral assignments due to its cash value component.

Life Insurance Calculator — This page lets you calculate the appropriate amount of life insurance coverage needed, which is crucial when considering using a policy for collateral.

About Nathan Paulus

Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.

Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.

Life Insurance Assignment – What They Are and Why You Need Them

Everything You Need to Know about Absolute vs. Collateral Assignments

Collateral assignment, how is a collateral assignment used, how to complete a collateral assignment, releasing a collateral assignment, death and collateral assignments, collateral assignments for the uninsurable, absolute assignment, final words.

What is a collateral assignment?

A collateral assignment of life insurance gives lenders the right to collect your policy’s death benefit up to the amount of the outstanding loan balance.

A typical scenario involves taking out a business loan .

The lender may require a life insurance policy as collateral.

The type of life insurance policy used, whether a term, whole life, or universal life doesn’t matter.

The insurance policy will pay off the balance if you die while the loan is outstanding.

Life insurance for SBA loans is required when you borrow from the SBA.

The collateral assignment applies to the entire policy, including any life insurance rider benefits that may be part of the policy.

The process is similar whether you are adding the assignment to an existing policy or are buying new coverage.

There are two parties to a collateral assignment.

Assignor – Is the owner of the life insurance policy
Assignee – Is the lender

Life insurance companies have standardized forms used for this purpose.

The owner completes the form and sends it to the lender for review and signature.
Once complete, you will send the form to the insurance company.
The insurance company records the assignment and sends a confirmation to the owner and lender that the assignment is complete.

This may all seem confusing if you haven’t used an assignment before, but the reality is that most life insurers make it pretty easy to complete.

When you pay off your lender, you have the right to have the collateral assignment removed.

The life insurance companies have collateral release forms as well.

The owner completes the form and sends it to the lender.
The lender signs off on the release.
Once complete, the insurance company records the release and sends the discharge letter to all parties.

Once complete, you should re-check with the home office to ensure that your policy released the assignment.

Your agent can help with this.

How do collateral assignments work when you die?

Check out this example:

Policy Face Amount = $1,000,000
Beneficiary = Your Spouse
Original Bank Loan = $200,000
Outstanding Loan Balance at Death = $100,000

What happens next?

Your beneficiary will file the death claim with the life insurance company.
The life insurance company will review the claim and see a collateral assignment attached to your policy.
The insurer contacts the lender for an updated payoff figure.
Payoff amounts are sent directly to the lender.
Your beneficiary receives the balance of the policy death benefit .

For the above example, your lender would receive $100,000, and your beneficiary would receive the remaining $900,000 as intended.

I would like to remind you that you NEVER want to name your lender as the beneficiary, as they would receive the entire proceeds rather than just what was owed.

While lenders may want a life insurance policy as collateral, sometimes it’s difficult to obtain if the insured has substantial health issues .

If you have an existing life insurance policy in effect, it’s possible to use that for the assignment.

Another option that exists in some states is contingent coverage.

Contingent coverage is a one-year policy that you can renew.

The policy will exclude death from the known health issue but provide coverage for new health issues that develop or from accidental deaths .

Many lenders accept this coverage when it’s the only option available.

What is an absolute assignment?

You use absolute assignments when you permanently relinquish all ownership rights to your life insurance policy.

Some examples:

Life Insurance Settlements

With this transaction, you are selling your life insurance policy to a third party.

You may convert a term policy to permanent insurance before it is sold.

Another example may involve admitting seniors to a nursing home.

The nursing home may take over the policy you have.

1035 Exchange

A 1035 exchange is a tax-free transfer of cash value from universal life or whole life policy to another similar policy.

Gifting Life Insurance to Charities

You can use absolute assignments to permanently transfer your policy to your favorite charity.

Irrevocable Life Insurance Trusts (ILIT)

You use absolute assignments to permanently transfer your policy to an ILIT.

An example would be a survivorship policy you and your spouse own that you are transferring to the trust.

Many other potential issues may arise with transfers to an ILIT that are beyond the scope of this article.

Business Cases

If you purchased key person life insurance on an employee, absolute assignments are used to transfer ownership to the employee.

You may have questions about your life insurance assignment and how it works.

The following are general guidelines, as each situation is uniquely different.

Can the collateral assignment change the beneficiary?

No, the collateral assignment does not change the beneficiary.

The life insurance assignment gives the lender the right to receive proceeds equal to their outstanding loan balance.

Can a business be a beneficiary in a collateral assignment of life insurance?

A business can be the beneficiary of a life insurance policy that is collaterally assigned.

Life insurance assignments are common for absolute and collateral assignments.

What is most important is that we understand what is involved with this process.

That’s where we’ll help you make the best decision for your life insurance.

There is never any pressure or obligation with our life insurance service.

Please take a few minutes to submit your quote request today. Thank you.

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What is collateral assignment.

Collateral assignment of life insurance allows policyholders to use the death benefit as loan collateral. The policyholder appoints a lender as the primary beneficiary of the insurance policy in the event the borrower passes away unexpectedly before repaying the loan. This lets the lender cash in the life insurance policy and recover what is owed if the policyholder dies.

Collateral assignment of life insurance guarantees funds to the business if the borrower defaults or dies. Many businesses accept life insurance as a form of collateral to protect against financial losses. If the policyholder dies before the loan is paid off, the lender receives the amount owed through the death benefit, and the remaining balance goes to the other listed beneficiaries. The collateral assignment is terminated as soon as the loan is paid in full.

Apply for Life Insurance for Collateral Assignment

The process to apply for life insurance for collateral assignment purposes is the same as applying for personal life insurance. You can use either a term or whole life insurance policy for collateral assignment. Applicants undergo an application review, a medical exam and a four- to six-week underwriting process. Applicants can also buy a no-medical exam life insurance policy that guarantees coverage they can use for collateral assignment, but they are more expensive, and the death benefit amounts tap out around $25,000.

Typically, whole life insurance policies are used for loan collateral because of their cash value. Although term insurance can help pay off a debt if the policyholder passes away, the account has no real value while the insured is alive. If the policyholder lapses on making payments on a whole or permanent life policy, they can just cash it in and collect the remaining cash value after paying off the loan and any other fees.

How to Name Your Beneficiaries on a Collateral Assignment Life Insurance Policy

When you purchase your collateral assignment life insurance policy, you list your beneficiaries not the bank or lender you are borrowing from. After the policy becomes active, the lender or bank is added as the assignee on the collateral assignment life insurance documents. Once that step is complete, the collateral assignment overrides your beneficiaries’ rights to the death benefit payout.

Collateral Assignment Life Insurance Policy Owner

The policyholder is the owner of the life insurance plan and is responsible for the monthly or annual premiums. Some lenders may require policyholders to submit proof of premium payments to ensure the account is active and in good standing. If the policy lapses or is canceled before the debt is paid off, the lender could consider that a violation of your financial agreement.

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Home > Finance > What Is An Assignee On A Life Insurance Policy?

What Is An Assignee On A Life Insurance Policy?

Published: October 14, 2023

Learn the role of an assignee on a life insurance policy and how it can impact your finances. Discover what it takes to become a finance-savvy assignee.

(Many of the links in this article redirect to a specific reviewed product. Your purchase of these products through affiliate links helps to generate commission for LiveWell, at no extra cost. Learn more )

Introduction, definition of assignee, role of assignee in a life insurance policy, rights and responsibilities of an assignee, process of assigning a life insurance policy, benefits of assigning a life insurance policy, considerations before assigning a life insurance policy, potential challenges and risks for assignees.

Life insurance is a crucial financial tool that provides protection and financial security to individuals and their loved ones in case of unexpected events. While the primary purpose of life insurance is to provide a death benefit to beneficiaries, policy owners also have the flexibility to assign or transfer their policy rights to another person or entity. This is where an assignee comes into play.

An assignee on a life insurance policy refers to the individual or entity who is designated to receive the policy benefits or be the recipient of any policy changes. Assigning a life insurance policy can be a strategic move for policyholders who want to transfer ownership rights or allocate the proceeds to a specific person or organization.

In this article, we will delve deeper into the role of an assignee in a life insurance policy, their rights and responsibilities, as well as the process of assigning a policy. We will also explore the benefits and considerations involved in assigning a life insurance policy, along with potential challenges and risks that assignees may encounter.

Understanding the concept of assignees in life insurance policies is essential for policyholders who may be considering transferring their policy rights or for beneficiaries who need to comprehend the implications of an assigned policy. Without further ado, let’s dive into the details of assignees on a life insurance policy.

An assignee on a life insurance policy is an individual or entity that is designated to receive the policy benefits or take over the ownership rights and responsibilities. When a policyholder assigns their life insurance policy, they transfer their rights to the assignee, who then becomes the new owner of the policy.

The assignee can be a spouse, child, relative, friend, or even a business entity such as a trust or corporation. The assignee can be named at the time the policy is initially taken out, or the policyholder can choose to assign the policy at a later date. In some cases, a policyholder may assign their policy to a lender or creditor as collateral for a loan.

It is important to note that the assignee is distinct from the beneficiary. The beneficiary is the person or entity who receives the death benefit proceeds upon the death of the insured. While the assignee assumes ownership of the policy, they may or may not be the same person as the beneficiary.

Assigning a life insurance policy can be a way for policyholders to ensure that the intended recipient receives the policy benefits or to transfer the financial responsibility and management of the policy to someone else.

Now that we have established the definition of an assignee in a life insurance policy, let’s explore their role in more detail.

The assignee plays a significant role in a life insurance policy once they have been designated as the new owner. Their responsibilities and authority may vary depending on the terms of the policy and the specific agreement between the policyholder and the assignee. Here are some key roles an assignee may have:

Policy Ownership: As the assignee, they become the legal owner of the life insurance policy. This means they have the rights to manage and make decisions regarding the policy, subject to any limitations or conditions outlined in the assignment agreement.
Premium Payments: The assignee is generally responsible for paying the premiums to keep the policy in force. They may choose to use their own funds or utilize the policy’s cash value, if available, to cover the premiums.
Beneficiary Designation: The assignee may have the authority to change the beneficiary designation if permitted by the policy terms. This gives them the ability to redirect the policy’s death benefit to another individual or entity.
Policy Modifications: Depending on the specific agreement, the assignee may have the power to make changes to the policy, such as increasing or decreasing the coverage amount, adjusting the policy term, or adding additional riders.
Access to Policy Information: As the new policy owner, the assignee has the right to access and review the policy information, including the policy terms, conditions, and any associated documents.
Claims Processing: In the event of the insured’s death, the assignee is responsible for initiating the claims process and ensuring that the death benefit proceeds are disbursed to the designated beneficiary.

It’s important to note that the specific roles and authority of the assignee can vary based on the terms of the assignment agreement. It is essential for both the policyholder and the assignee to have a clear understanding of their respective roles and responsibilities to avoid any confusion or disputes in the future.

Now that we have examined the role of an assignee in a life insurance policy, let’s explore the rights and responsibilities they have in more detail.

When an individual or entity becomes the assignee of a life insurance policy, they acquire certain rights and responsibilities associated with the policy. These rights and responsibilities can vary depending on the terms of the assignment agreement and the specific provisions of the policy. Let’s take a closer look at the rights and responsibilities of an assignee:

Rights of an Assignee:

Ownership Rights: As the assignee, they have the right to the policy benefits and any cash value that has accumulated. They can make decisions regarding the policy, such as changing the beneficiary, modifying coverage, or accessing policy information.
Premium Payments: The assignee has the right to receive premium payments from the policyholder, which they can use to keep the policy in force. They may also have the right to access the policy’s cash value, if available.
Policy Modifications: Depending on the terms of the assignment agreement, the assignee may have the right to make changes to the policy, such as adjusting the coverage amount, policy term, or adding additional riders.
Access to Policy Information: The assignee has the right to access and review the policy information, including the terms, conditions, and any associated documents. This allows them to stay informed about the policy’s provisions and make informed decisions.
Claims Processing: In the event of the insured’s death, the assignee has the right to initiate the claims process and receive the death benefit proceeds. They are responsible for disbursing the proceeds to the designated beneficiary, if applicable.

Responsibilities of an Assignee:

Premium Payments: As the assignee, they are responsible for making premium payments to keep the policy in force. This ensures that the policy remains active and the coverage continues.
Policy Management: The assignee has the responsibility to manage and maintain the policy. This includes reviewing the policy regularly, staying informed about any changes in the terms and conditions, and making decisions that align with the policyholder’s intentions.
Beneficiary Designation: If authorized by the assignment agreement, the assignee may have the responsibility to change the beneficiary designation if necessary. This involves ensuring that the intended recipient of the death benefit is correctly designated.
Communication: The assignee has the responsibility to maintain open communication with the policyholder, beneficiaries, and any other parties involved. This helps in addressing any questions, concerns, or changes that may arise regarding the policy.

It’s important for both the assignee and the policyholder to have a clear understanding of these rights and responsibilities to ensure a smooth and effective management of the policy. Now that we have explored the rights and responsibilities of an assignee, let’s move on to understand the process of assigning a life insurance policy.

The process of assigning a life insurance policy involves transferring the ownership rights and control of the policy from the policyholder to the assignee. While the specific steps may vary based on the insurance company and policy terms, the general process typically includes the following:

Review Policy Terms: The policyholder should carefully review the terms and conditions of their life insurance policy to understand any limitations or restrictions on assigning the policy.
Choose an Assignee: The policyholder selects an individual or entity to be the assignee. This can be a family member, friend, trust, or even a business entity. It is essential to consider the long-term goals and intentions when choosing an assignee.
Obtain Consent: The policyholder must obtain the consent of the proposed assignee to ensure they are willing to assume the responsibilities and obligations associated with the policy.
Prepare Assignment Agreement: The policyholder and the assignee should work together to prepare an assignment agreement. This is a legal document that outlines the terms of the assignment, including the assignee’s rights, responsibilities, and any potential compensation or considerations involved.
Notify the Insurance Company: The policyholder must contact their insurance company to inform them of the intention to assign the policy. The insurance company may require specific forms to be filled out, along with a copy of the assignment agreement.
Insurance Company Approval: The insurance company will review the assignment request and the assignment agreement to ensure they comply with their policies and regulations. Once approved, they will update their records to reflect the new assignee.
Update Beneficiary Designation: If the assignee is different from the original beneficiary, the policyholder may need to update the beneficiary designation to ensure that the intended recipient receives the death benefit.

It is crucial for both the policyholder and the assignee to consult with legal and financial professionals to ensure that the assignment process is conducted properly, adhering to any legal requirements and optimizing the financial outcomes for all parties involved.

Now that we have discussed the process of assigning a life insurance policy, let’s move on to explore the benefits of assigning a life insurance policy.

Assigning a life insurance policy can offer several benefits for both the policyholder and the assignee. Here are some key advantages of assigning a life insurance policy:

Control and Flexibility: Assigning a life insurance policy allows the policyholder to have control over who will manage and benefit from the policy. It provides flexibility to designate a specific person or entity to take over the ownership rights and responsibilities.
Estate Planning: Assigning a life insurance policy can be an effective estate planning strategy. It allows the policyholder to transfer assets outside of their estate, which may help in minimizing estate taxes and ensuring a smooth transfer of wealth to the intended recipients.
Creditor Protection: By assigning a life insurance policy to a trust or business entity, the policy cash value and death benefit may be protected from potential creditors. This provides an added layer of financial security for the assignee and the intended beneficiaries.
Financial Assistance: Assigning a life insurance policy can be beneficial in scenarios where the assignee needs financial assistance. For example, if the assignee is facing financial hardship or requires funds for a specific purpose, they may be able to access the policy’s cash value or even borrow against the policy.
Charitable Giving: Assigning a life insurance policy to a charitable organization can be a meaningful way to support a favorite cause. It allows the policyholder to make a significant charitable contribution, and the assignee, in this case, would be responsible for managing the policy and ensuring that the proceeds benefit the designated charity.

It’s important to note that the benefits of assigning a life insurance policy can vary depending on the specific circumstances and goals of the policyholder. Therefore, it is advisable to consult with financial advisors, estate planning professionals, and insurance experts to assess the suitability of assigning a policy and to maximize the potential benefits.

Now that we have explored the benefits of assigning a life insurance policy, let’s move on to discuss some considerations before making the decision to assign a policy.

Before deciding to assign a life insurance policy, it is crucial to carefully consider a few key factors. These considerations will help ensure that the decision aligns with your financial goals and meets your specific needs. Here are some important points to ponder:

Impact on Beneficiaries: Assigning a life insurance policy may have implications for the intended beneficiaries. It is essential to consider their needs and financial security before assigning the policy to someone else or an entity. Make sure to have open conversations with the beneficiaries to discuss any changes in the policy ownership and how it may impact them.
Future Financial Needs: Assess your own future financial needs before assigning a life insurance policy. Life circumstances can change, and it is crucial to determine if the policy’s cash value or death benefit might be required for your own financial stability or long-term goals. Balancing immediate financial needs with the desire to assign the policy is important.
Trustworthiness of the Assignee: Consider the trustworthiness and reliability of the proposed assignee. Assigning a life insurance policy involves transferring ownership rights and responsibilities, so it is crucial to choose someone who will effectively manage the policy and fulfill the agreed-upon obligations. Conduct thorough due diligence and consider seeking legal advice to ensure the assignee is the right choice.
Tax Implications: Assigning a life insurance policy may have tax implications. Consult with tax professionals to understand any potential tax consequences of the assignment, such as gift tax or estate tax considerations. Proper planning and knowledge of tax laws will help mitigate any unexpected tax liabilities.
Insurance Company Policy: Review the terms and conditions of your life insurance policy regarding assignments. Some policies may have restrictions or limitations on assigning a policy, and it’s important to understand these provisions. Contact your insurance company directly to clarify any concerns or questions related to the assignment process.
Legal Considerations: Assigning a life insurance policy involves legal documentation and agreements. It is advisable to consult with legal professionals who specialize in insurance and estate planning to ensure that the assignment is conducted in compliance with applicable laws and meets your specific needs.

Considering these factors will help you make an informed decision about whether assigning a life insurance policy is the right choice for you. Assess your individual situation, speak with professionals, and review your long-term goals to determine if assigning the policy aligns with your overall financial plan.

Now that we have explored the considerations before assigning a life insurance policy, let’s discuss some potential challenges and risks for assignees.

While assigning a life insurance policy can have its benefits, there are also potential challenges and risks that assignees should be aware of. Understanding these risks will help you make informed decisions and take necessary precautions. Here are some potential challenges and risks for assignees:

Financial Responsibility: As the assignee, you become responsible for paying the policy premiums to keep the coverage in force. Failure to pay the premiums can result in the policy lapsing, causing loss of coverage and potential loss of the policy’s cash value.
Potential Conflict: Assigning a life insurance policy may lead to conflicts, especially if the policyholder has multiple beneficiaries or if the assigned policy conflicts with other estate planning arrangements. It is important to communicate and coordinate with all involved parties to minimize potential disputes.
Changing Circumstances: Life circumstances can change, and the assigned policy may no longer align with the assignee’s needs or financial goals. Review the policy periodically to ensure it still meets your objectives. If necessary, consult with professionals to explore options for policy modifications or changes.
Loss of Control: By assigning a policy, you relinquish control over certain aspects of the policy. The assignee may need to consult the policyholder or beneficiaries before making any changes or important decisions. This loss of control should be carefully considered before proceeding with the assignment.
Insurance Company Approval: The insurance company typically has the final say in approving the assignment. They will review and confirm the assignment agreement to ensure compliance with their policies. If the assignment is not approved, it can impede the intended transfer of ownership.
Tax Implications: Assigning a life insurance policy may have tax consequences for the assignee, such as potential income tax on the policy’s cash value or estate tax implications. Consult with tax professionals before finalizing the assignment to fully understand these potential tax implications.

It is crucial for assignees to carefully weigh these challenges and risks against the potential benefits before accepting the assignment of a life insurance policy. Be proactive in communicating with the policyholder and beneficiaries, stay informed about policy details, and seek professional guidance to navigate any potential challenges or risks.

Now that we have discussed the potential challenges and risks for assignees, let’s wrap up our article.

Assigning a life insurance policy can be a strategic financial move that offers flexibility and control over the policy’s ownership and benefits. By designating an assignee, individuals can ensure that the policy proceeds are directed to the intended recipient or utilize the expertise of an entity to manage the policy. However, before proceeding with an assignment, it is important to carefully consider various factors.

Understanding the role, rights, and responsibilities of an assignee is vital to ensure a smooth transition and effective management of the policy. The assignee assumes ownership of the policy, enjoying benefits such as decision-making authority and control over premiums. They also have responsibilities, including making premium payments, managing the policy, and initiating claims if the insured passes away.

The process of assigning a life insurance policy involves reviewing policy terms, choosing an assignee, obtaining consent, preparing an assignment agreement, and notifying the insurance company. It is crucial to review the policy specifics and consult legal and financial professionals to ensure compliance with regulations and optimize financial outcomes.

Assigning a life insurance policy offers numerous benefits, such as control, estate planning opportunities, creditor protection, and financial assistance. However, there are considerations to keep in mind, including the impact on beneficiaries, future financial needs, and tax implications.

Assignees may face potential challenges, such as financial responsibility, conflicts of interest, changing circumstances, loss of control, and insurance company approval. These risks should be carefully assessed, and open communication with the policyholder and beneficiaries is essential to minimize disputes and ensure a smooth transition.

In conclusion, assigning a life insurance policy requires thoughtful deliberation and consultation with professionals. Assessing your financial goals, considering the needs of beneficiaries, and understanding the potential risks will help make an informed decision. Assigning a life insurance policy can provide peace of mind, but careful consideration and planning are essential to ensure the assigned policy aligns with your long-term financial goals.

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Assignment of Life Insurance Policy

Assignment of a Life Insurance Policy simply means transfer of rights from one person to another. The policyholder can transfer the rights of his insurance policy to another for various reasons and this process is called Assignment.

The person who assigns the policy, i.e. transfers the rights, is called the Assignor and the one to whom the policy has been assigned, i.e. the person to whom the policy rights have been transferred is called the Assignee. Once the rights have been transferred to the Assignee, the rights of the Assignor stands cancelled and the Assignee becomes the owner of the policy.

here are 2 types of Assignment:

Absolute Assignment – This means complete Transfer of Rights from the Assignor to the Assignee, without any further conditions applicable.
Conditional Assignment – This means that the Transfer of Rights will happen from the Assignor to the Assignee subject to certain conditions. If the conditions are fulfilled then only the Policy will get transferred from the Assignor to the Assignee.

Let’s take an example:

Rahul owns 2 Life Insurance policies of value Rs 2 lakhs and Rs 5 lakhs respectively. He would like to gift one policy of Rs 2 lakhs to his best friend Ajay. In that case, he would like to absolutely assign the policy in his name such that the death or maturity proceeds are directly paid to him. Thus, after the assignment, Ajay becomes the absolute owner of the policy. If he wishes, he may again transfer it to someone else for any other reason. This type of Assignment is called Absolute Assignment.

Now, Rahul needed to take a loan for Rs 5 lakhs. So, he thought of doing so against the other policy that he owned for Rs 5 lakhs. To take a loan from ABC bank, he needed to conditionally assign the policy to that Bank and then the bank would be able to pay out the loan money to him. If Rahul failed to repay the loan, then the bank would surrender the policy and get their money back.

Once Rahul’s loan is completely repaid, then the policy would again come back to him. In case, Rahul died before completely repaying the loan, then also the bank can surrender the policy to get their money back. This type of Assignment is called Conditional Assignment.

Sachin Telawane is a Content Manager and writes on various aspects of the Insurance industry. His enlightening insights on the insurance industry has guided the readers to make informed decisions in the course of purchasing insurance plans.

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Assignment of Life Insurance

WARNING! This form permanently transfers ownership of your FEGLI insurance to another individual, trustee, or corporation (however, premiums continue to be withheld from your salary/annuity). An assignment is irrevocable, and cannot be changed later. DO NOT USE THIS FORM if you only wish to designate a beneficiary to receive your life insurance. Instead, use the available designation of beneficiary form .

For more information about assignments and designations of beneficiary, see the FEGLI Booklet on Assignments , and Designation of Beneficiary and Order of Precedence .

FEGLI enrollees use this form to assign ownership of their life insurance coverage to another person, firm, or trust; and assignees use the form to reassign the coverage.

Electronic Copies:

RI 76-10

Paper Copies:

Request a paper copy of this form from your servicing Human Resources Office.

Annuitants:

Call toll free 1-888-767-6738 (202-606-0500 in the DC Area), or
Send an email to [email protected] , giving the number of the form that you need and your mailing address, or
Request a copy from a local Federal agency Human Resources Office.

Term life vs. permanent life insurance

Term life insurance

Whole life insurance

Universal life insurance, variable life insurance, variable universal life insurance, simplified issue life insurance, guaranteed issue life insurance, group life insurance, choosing the right type of life insurance, types of insurance faqs, exploring the types of life insurance: a comprehensive guide.

Affiliate links for the products on this page are from partners that compensate us (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate insurance products to write unbiased product reviews.

Permanent life insurance lasts your lifetime and accrues cash value in addition to offering a death benefit.
Term life lasts for a specified time and then expires, but it's cheaper than permanent life.
There are several types of term and permanent life policies, and some don't require a medical exam.

Life insurance is a contract between you and the life insurance company. You'll pay monthly or annual premiums for coverage. If you pass away while your policy is in effect, your insurer must pay a death benefit or your policy's proceeds to your chosen beneficiary.

Life insurance is a crucial tool to manage your risk and protect your loved ones financially. "If you don't make it home and someone relies on your income to live, you need life insurance," says Mark Williams, CEO of Brokers International.

The best life insurance policy for you depends on your budget as well as your financial goals. There are two main types of life insurance policies to choose from: permanent life and term life.

The difference between term life insurance and permanent life insurance is similar to the difference between renting an apartment (term life) and owning a home (permanent life).

When you rent, you have a lease for a certain amount of time. When that lease is over, you can renew it. Likewise, term insurance lasts for a specified period. When it ends, you can reapply for coverage, but your premiums will likely increase based on your age and health status.

Permanent life insurance has a death benefit for your beneficiaries and a cash value you can use during your lifetime. It's like owning a home. Like a home, you build equity in your policy, which you can use as collateral. You can also use your cash value to leave a larger death benefit to your heirs when you pass away.

Whether you choose permanent or term life insurance, you must undergo the underwriting process. During the underwriting process, your insurer gathers information about your health, job, income, finances, and other personal information to evaluate your risk level. It may require a medical exam, which includes collecting a blood and urine sample. Based on your risk level, the insurer determines your eligibility, premiums, and coverage amount.

The table below highlights the core differences between term and permanent life insurance.

Term life insurance

What is it .

The most popular type of term life insurance is a level term policy. You pay fixed premiums for a designated term—usually between ten and 30 years—for a fixed death benefit. If you die during your term, your beneficiaries receive a death benefit. If you outlive your policy and pass away without renewing your coverage, your beneficiaries won't receive a death benefit.

There are also other types of term life insurance policies, some more popular or expensive than others. Take a look at the list below for the top term life policies and their features.

Annual yearly renewable (ART): This policy provides coverage one year at a time up to a specified age, without an additional medical exam. However, premiums increase each year as you age.
Return of premium: Returns part or all of the money you've already paid if you haven't used the policy once your term ends. You'll pay an extra premium for this feature.
Convertible term life: This allows you to convert a term life policy into permanent life insurance without additional evidence of insurability.

Who is it best for?

Term life insurance provides coverage for a certain amount of time. This makes it suitable for most applicants, as most people's financial obligations decrease as they age. It's also the most affordable life insurance policy, making it accessible to most individuals. You can find our guide on the best term life insurance here.

Whole life insurance is a lifelong or permanent policy in which you pay a fixed premium for a guaranteed death benefit. The insurance company saves a portion of your premium in its own portfolio to increase your policy's cash value. Since whole life insurance offers many guarantees, it's one of the costlier life insurance policies.

Whole life insurance is an excellent option if you need long-term coverage, like if you have lifelong dependents or are a business owner. If you'd like to build a tax-free legacy for your dependents with little to no market risk, a whole life policy may be the way to go. You can find our guide on the best whole life insurance here.

Universal life insurance allows more flexibility than a whole life policy. You can raise or lower your death benefit, which increases or decreases your premiums based on your financial situation and needs. For example, if you find that you need less coverage because your children are grown up and your mortgage is almost paid off, you can lower your death benefit. As a result, this decreases your premiums.

If you'd like lifelong coverage, steady cash value growth, and flexibility in your premium payments and coverage amounts to align with changing financial needs, universal life insurance could be the perfect policy for you. You can find our guide on the best universal life insurance here.

Variable life (VL) insurance policy, a type of permanent life insurance , was created years after universal life for people who didn't like how whole and universal life commingled their investments with the insurance company.

Your money is invested in subaccounts that track underlying mutual funds, bonds, and stocks. If the market does well, so do you. If the market falls, so does your cash value, making it riskier than whole and universal life.

VL insurance is best for someone who wants control over how their cash value is invested and can tolerate increased market risk for higher returns. Since life insurance policies tend to yield subpar returns, VL may be best suited for high-net-worth investors who have maxed out other tax-advantaged investment vehicles (i.e., 401(k)s, Individual Retirement Accounts (IRA)s, etc.).

Variable universal life (VUL) insurance is a combination of universal and variable life insurance. You can raise or lower your death benefit and have your cash value invested in subaccounts that mirror the performance of underlying investments. Again, this is risky, but if the market does well, so does your cash value.

Like a VL policy, VUL is best for those who want lifelong coverage, more investment options, and the ability to weather increased risk for higher returns. It's also suitable for those hat want flexible premium payments and coverage amounts. You can find our guide on the best universal life insurance here.

Simplified issue life insurance doesn't require a medical exam, but you still have to complete a health questionnaire and provide access to medical records. If you fail to disclose a condition and die, your insurance company can deny death benefits to your beneficiaries.

It's worth noting that some insurance companies enforce graded death benefits, which refers to your insurer withholding your full death benefits for the first few years of coverage.

Simplified issue life insurance is suitable for applicants of all ages with mild to moderate medical conditions (e.g., asthma, obesity, mental health issues, etc.) You can find our guide on the best no exam life insurance .

Guaranteed issue life insurance is easier to obtain because it doesn't require a medical exam or health questionnaire. However, it has several drawbacks. One of those drawbacks is you must be 50 and older to apply. Plus, since this policy is catered towards high-risk applicants, premiums are usually higher, and coverage amounts are limited.

Guaranteed issue life insurance is also known as final expense insurance since it offers low death benefit amounts and tends only to cover funeral and burial expenses.

Guaranteed issue life insurance is a viable option for individuals who struggle to obtain traditional life insurance, like seniors, smokers, and applications with chronic, severe, terminal illnesses or multiple health conditions. You can find our guide on the best life insurance for seniors here.

Group life insurance is employer-provided life insurance, usually offered for free as part of the company's benefits. However, if you are discharged, retire, or quit, you will lose coverage. Plus, group life insurance usually has limited coverage amounts and options compared to private life insurers.

Consider group life insurance if you're employed with a company that offers this benefit and you anticipate staying with the company in the long run.

The best life insurance policy for you depends on your budget and financial situation. If you have a fixed income with temporary needs, term life insurance may be best for you. If you have health issues that may prevent you from traditional coverage, you may want to consider no medical examination life insurance . If you want coverage for your dependents in the event of your untimely death, then a term life policy works. If you want to build wealth and leave a legacy, a permanent life insurance policy is best.

Your life insurance needs will change as you age, and you'll need to consider children , marriage, divorce, retirement, and caring for aging parents. Consider consulting a financial advisor, estate attorney, and accountant to ensure you have the proper coverage for your goals and life changes. Also, talk to your insurance agent or financial planner about what works best for you and your budget based on your financial situation.

Term life insurance provides coverage for a certain period of time (usually ten to 30 years). Whole life insurance offers lifelong coverage along with a cash value component.

Many term policies have built-in term-to-perm conversion options. If not, you can include it as a rider or an add-on to your policy at an additional premium. This allows you to convert your term policy to a whole life policy without undergoing an additional medical exam or health questionnaire.

Policies like variable life and variable universal life insurance insurance allow policyholders to invest the cash value in separate accounts that track underlying investments, This offers the potential for growth but exposes you to market volatility, increasing your risk.

If you don't qualify for traditional life insurance, no medical exam policies like simplified issue or guaranteed issue may be an option. However, these policies tend to have higher premiums and lower coverage amounts.

Consider your financial goals, coverage needs, budget, and any current or potential health issues. Work with a financial advisor for personalized guidance on your individual situation.

Editorial Note: Any opinions, analyses, reviews, or recommendations expressed in this article are the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any card issuer. Read our editorial standards .

Please note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed, or may no longer be available.

**Enrollment required.

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Who actually needs life insurance?

If you have kids or are worried about passing on debt, the added security may be worth it

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Between health insurance, dental and vision insurance, car insurance, and homeowners or renters insurance, an additional form of coverage may be the last thing you want to think about. But given the uncertainty that life can bring, it's worth considering whether life insurance makes sense for you.

Not everyone needs it . But if you have children, for instance, or you're worried about passing on debt , then purchasing life insurance for added security may be worthwhile.

What does life insurance offer?

To understand whether or not life insurance makes sense for you, it's first helpful to understand what life insurance actually does, and how it works.

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Put simply, "life insurance is designed to provide financial support to your loved ones after you die," said U.S. News & World Report . When you buy life insurance, you "enter into a contract with the insurance company stating that in exchange for premium payments, the insurer will pay out a lump sum, also known as a death benefit, to the beneficiaries of your choice upon the insured person's passing."

How much your beneficiaries receive typically "is equal to the face amount of the policy — so if you have a $500,000 policy, your beneficiaries will receive $500,000," said NerdWallet .

It's up to the beneficiaries to decide what to do with those funds, but they can come in handy in "a number of ways," said Investopedia , including "covering funeral and burial expenses," "paying off any outstanding debts owed by your estate," or "creating a supplemental source of income for your loved ones."

Who should get life insurance?

When it comes time to decide whether to buy life insurance, the "key question" to ask is "whether there are people in your life, including family members and employees, who depend on you financially," said Investopedia. However, it's also worth considering your financial goals — for instance, you may know you'd want to contribute to a grandchild's college education or donate to a certain charity in the event of your death.

More specifically, people in the following situations could likely benefit from life insurance:

Parents with young children, or a special needs dependent who they care for.
People who have a partner that lives off of their income.
Individuals hoping to contribute to mortgage payments or college tuition for their family.
Those who want to avoid leaving behind debt (including student loan debt ), or cover the cost of their funeral or estate taxes.
Business owners who have employees or business partners reliant upon them.

On the other hand, "if no one in your life would be financially burdened by your death, you can likely put off buying a life insurance policy," said NerdWallet.

However, it's worth noting that the younger and healthier you are, the more affordable life insurance is, so "if you see major life changes on the horizon, such as marriage or children, it may be worth exploring your options to lock in a good price at the right time."

What type of life insurance should you get, and how much do you need?

Once you have decided to purchase life insurance, you will need to determine what type of life insurance to get, and how much coverage you need.

Generally speaking, life insurance policies "fall into one of two categories," said Investopedia:

Term life insurance: With term life insurance, you're covered for a certain period of time, like 10 or 20 years. The upside is that "it's typically more affordable and can be tailored to cover the years you're most financially vulnerable," said Bankrate .

Permanent life insurance: As the name suggests, permanent life insurance "covers you for your lifetime, as long as premiums are paid," said Investopedia, making it a good choice if you're considering estate planning or charitable giving. While "typically more expensive," permanent life insurance policies "offer lifelong coverage and can accumulate cash value over time," said Bankrate.

As for how much coverage makes sense, one way to calculate that is by looking "at your current income, debts, investments and other financial assets," said U.S. News & World Report. That said, you'll also want to "take into consideration future expenses, such as college tuition for your children," which is why "speaking with a financial advisor about your life insurance needs may also be helpful."

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Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.

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AAA Life meets demands of an ever-changing world

Life insurance company uses new systems to better serve policyholders.

AAA Life associates are encouraged to speak up and address ways to improve operations and workplace culture through the company’s Officevibe listening tool and during all-company Town Halls.

AAA Life Insurance Company has been serving policyholders for more than 50 years – a time during which it has earned the trust of AAA members.

But as the world continues to change, the southeastern Michigan-based company is changing with it. To better serve policyholders and connect with more AAA members, AAA Life is transforming its legacy systems.

The transformation has started with an inward focus by making sure that AAA Life associates have what they need to successfully meet the demands of an ever-changing world.

“A strong workplace culture leads to associates’ satisfaction, engagement and retention,” said Tyffani Smith, vice president of Human Resources, People and Culture for AAA Life. “Our culture of open communication, mutual respect, shared goals and a commitment to associate development leads to increased business growth and better service to our customers.”

The company replaced its 20-year-old legacy policy administration with an integrated, cloud-based system and has implemented other automation tools.

“This has provided a clearer view of customer data, enabling the company to develop new products more quickly to meet customer needs,” Smith said.

This is just the first of many steps it has taken toward building a future-focused company.

Next, AAA Life created new learning and development opportunities for its associates. The new offerings stemmed from an employee survey and feedback tool. Company leaders listened to associates about ways to take the company forward – including making diversity and inclusion a key focal point, so associates can bring their authentic selves to work each day.

But the company didn’t stop at creating a world-class experience for associates; it also prioritized new customer-facing tools to make doing business easier.

Innovative solutions such as an e-service policy management tool were among the ways that the company streamlined and improved its business functions – and they have prepared AAA Life for an ever-changing digital world. Other solutions include a digital claims form submission process, call-to-text capabilities, and digital service options via aaalife.com.

The solutions have created a more positive experience for customers and associates. Furthermore, they have simplified training for call center representatives. As a result, call center interactions have become more satisfying for representatives and customers.

The solutions helped the company win the World’s Digital Transformation Award for Insurer Transformation 2023 and a place on Forbes’ America’s Best Insurance Companies list.

In 2023, AAA Life earned several significant culture awards in the areas of professional development, associate well-being and female leadership. In 2024, the company received national culture awards in the areas of innovation, leadership, work-life flexibility, purpose and values and compensation and benefits.

The company’s benefits include medical, dental and vision coverage, short-term and long-term disability and life insurance. Generous paid time off, a 401(k) with company match and a pension also are offered.

The company has grown from 600 to 800 people over one year – and it has no plans to stop.

“We are driven by our mission to provide financial security and peace of mind to AAA members. As their life insurer, members count on us during one of the most difficult times in their lives," said Betty Schick, chief marketing officer. "The strides we are taking to transform our systems and technology will enable us to provide enhanced support to our policyholders. We know that when we give associates the tools and empower them to do what's right for AAA members, we can deliver on our mission."

To learn more about the culture and careers at AAA Life, visit aaalife.com/careers .

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Assignment in Life Insurance

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Collateral Assignment of Life Insurance
A collateral assignment of life insurance is a method of securing a loan by using a life insurance policy as collateral. If you pass away before the loan is repaid, the lender can collect the ...
What Is Collateral Assignment of Life Insurance?
Collateral assignment of life insurance is an arrangement where you agree to give a lender the first claim to the payout from your life insurance policy. This allows your life insurance to serve as the collateral that many loans — especially small business loans or Small Business Administration (SBA) loans — require before they can lend you money you need.
A Collateral Assignment of Life Insurance
A collateral assignment of life insurance is a conditional assignment appointing a lender as an assignee of a policy. Essentially, the lender has a claim to some or all of the death benefit until ...
What is a Collateral Assignment of Life Insurance?
With collateral assignment of life insurance, ownership of an asset transfers from the borrower to the lender. This transfer only remains in place until the loan is paid in full. In this situation, the transferred asset is your life insurance policy. The goal is only to satisfy your loan obligation. Once that debt is repaid, you'll end the ...
Collateral Assignment of Life Insurance
3. Fill out a collateral assignment form. Once you sign your life insurance contract and pay your first premiums, complete a collateral assignment form with your insurer. You'll fill out your lender's contact details so your insurer can designate them as a collateral assignee while your loan is outstanding. 4.
What Is a Collateral Assignment of Life Insurance?
The Bottom Line. Collateral assignment of life insurance allows you to use your life insurance policy as collateral when applying for loans. This is especially common when applying for business loans. However, your insurer must allow this arrangement, and the policy must be sufficient to cover the collateral requirements.
What Is a Life Insurance Assignment?
A life insurance assignment is a document that allows you to transfer the ownership rights of your policy to a third party, transferring to that third party all rights of ownership under your ...
What Is A Collateral Assignment Of Life Insurance?
Once you've assigned a new collateral assignee to your life insurance policy, they will be entitled to lay a claim on your death benefit for any debt you have with them. For example, let's say you take out a collateral assignment life insurance policy worth $200,000 for a loan of $75,000 over 7 years at an interest rate of 18%.
What Is Collateral Assignment of Life Insurance?
In a collateral assignment of life insurance, you use a life insurance policy to secure a loan. You first set up coverage as usual by applying for and buying some type of life insurance policy with a death benefit. If you already have a policy, you could use that too. Then you fill out a collateral assignment form with the lender.
How does collateral assignment of life insurance work?
There are two main types of life insurance you can use for collateral assignment: term or permanent. Term life insurance offers coverage for a certain length of time, while permanent life insurance covers you for your entire lifetime. Permanent life insurance also has a cash value component that accumulates over time. Requirements will vary by lender, so make sure they accept the type of life ...
What Is A Collateral Assignment of Life Insurance?
Life insurance is often the key to securing a loan. Frequently, lenders request a collateral assignment of life insurance as a requirement for loan approval.. Why?. Your bank, or lending institution, has an interest in guaranteeing the loan they provide will be paid back, regardless of your circumstances.. Think of an assignment of life insurance as collateral as a promise to your lender.
Collateral Assignment for Life Insurance: Benefits & More
Collateral assignment of life insurance allows the lender to be the primary recipient of your life insurance policy's death benefit if you have an outstanding loan balance when you die. Some assignments also allow the lender to tap into the policy's cash value if you default on your loan. While using life insurance as collateral does not ...
What Is Collateral Assignment of Life Insurance?
Collateral assignment of life insurance is an arrangement where a policyholder uses the face value of their life insurance policy, which can be a term or permanent life insurance policy, as collateral to secure a loan. If the policyholder dies before the loan is paid off, the lender is prioritized to receive a portion of the death benefit ...
Life Insurance Collateral Assignment [Pros and Cons]
A collateral assignment of life insurance is a conditional assignment that appoints a lender as an assignee of the policy. Similar to using other types of collateral for a loan - such as a property or a vehicle - if the loan is not repaid, the lender has a claim to some or all of the life insurance policy's death benefit, and in some ...
Life Insurance Assignment
There are two parties to a collateral assignment. Assignor - Is the owner of the life insurance policy. Assignee - Is the lender. Life insurance companies have standardized forms used for this purpose. The owner completes the form and sends it to the lender for review and signature. Once complete, you will send the form to the insurance ...
What Is Collateral Assignment?
Collateral assignment of life insurance guarantees funds to the business if the borrower defaults or dies. Many businesses accept life insurance as a form of collateral to protect against financial losses. If the policyholder dies before the loan is paid off, the lender receives the amount owed through the death benefit, and the remaining ...
Collateral Assignment of Life Insurance
At this stage, there's no need to list the lender as a beneficiary. Step 3: Activate your policy. Then, request a collateral assignment form from your agent or insurer directly. Step 4: Complete the form and return it to the insurance company. After processing, the insurer acknowledges the collateral assignment.
What Is An Assignee On A Life Insurance Policy?
The process of assigning a life insurance policy involves reviewing policy terms, choosing an assignee, obtaining consent, preparing an assignment agreement, and notifying the insurance company. It is crucial to review the policy specifics and consult legal and financial professionals to ensure compliance with regulations and optimize financial ...
What Is Collateral Assignment of Life Insurance?
A collateral assignment for your life insurance coverage only allows the bank or lender to claim the amount of money still owed on an outstanding loan or debt. If you have a $500,000 life insurance policy and die while still owing $50,000 on a business loan, the lender could claim $50,000 of your death benefit — assuming, of course, that you ...
Assignment of Life Insurance Policy
Listen to this article. Assignment of a Life Insurance Policy simply means transfer of rights from one person to another. The policyholder can transfer the rights of his insurance policy to another for various reasons and this process is called Assignment. The person who assigns the policy, i.e. transfers the rights, is called the Assignor and ...
Understanding What is Assignment in Life Insurance Policy
An assignment is a legal process through which policy ownership transfers from an assignor to an assignee. It can be beneficial under multiple circumstances, especially in a financial emergency. Therefore, before you buy a life insurance plan, understand these features since they can help you in the future. In addition, the assignment of a life ...
Collateral Assignment of Life Insurance
Collateral assignment of life insurance is a method of providing a lender with collateral when you apply for a loan. In this case, the collateral is your life insurance policy's face value, which could be used to pay back the amount you owe in case you die while in debt. Collateral assignment of life insurance is a common requirement for ...
Assignment of Life Insurance
FEGLI enrollees use this form to assign ownership of their life insurance coverage to another person, firm, or trust; and assignees use the form to reassign the coverage. The employee/retiree is still the insured person, but s/he no longer owns the insurance on his/her life. The employee/retiree continues to pay the FEGLI premiums from the employee salary or retirement annuity. An assignment ...
Understanding Different Types of Life Insurance
Life insurance is a crucial tool to manage your risk and protect your loved ones financially. "If you don't make it home and someone relies on your income to live, you need life insurance," says ...
Who actually needs life insurance?
Term life insurance: With term life insurance, you're covered for a certain period of time, like 10 or 20 years.
How Does Life Insurance Work?
But life insurance is a must for anyone with a spouse, kids or someone else to financially support. Here's an example of life insurance in action: Jase is married with two kids and makes $70,000 a year. His wife, Lydia, is a stay-at-home mom. Jase owns a life insurance policy worth $700,000 and pays $50 a month for it.
How to sell your life insurance policy
When you sell a life insurance policy, you'll pay taxes on the portion of your proceeds that exceeds your contributions to the policy. For example, suppose you've paid $30,000 of premiums ...
AAA Life meets demands of an ever-changing world
The company's benefits include medical, dental and vision coverage, short-term and long-term disability and life insurance. Generous paid time off, a 401(k) with company match and a pension also ...

Collateral assignment of life insurance

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Insurance Disclosure

What is collateral assignment of life insurance?

Why use life insurance as collateral?

Pros and cons of using life insurance as collateral

What types of life insurance can I use as collateral for a loan?

How do I take out a loan using a collateral assignment of life insurance?

Alternatives to life insurance as collateral

Unsecured loan

Secured loan

Life insurance loan

Home equity line of credit (HELOC)

Frequently asked questions

Related Articles

What Is a Collateral Assignment of Life Insurance?

Key Takeaways

How a Collateral Assignment of Life Insurance Works

Example of Collateral Assignment of Life Insurance

Alternatives to Collateral Assignment of Life Insurance

What Are the Benefits of Collateral Assignment of Life Insurance?

What Kind of Life Insurance Can Be Used for Collateral?

Is Collateral Assignment of Life Insurance Irrevocable?

What is the Difference Between an Assignment and a Collateral Assignment?

The Bottom Line

What Is a Life Insurance Assignment?

Conditional Assignment

Absolute Assignment

Secured Loan

Collateral Loan

Related Articles

What Is A Collateral Assignment?

Table of Contents

What Is Collateral Assignment Of Life Insurance?

Requirements For Assignment Of Life Insurance As Collateral

Process Of Securing Collateral Assignment

Key Details

Types Of Life Insurance Used As Collateral

Is No Exam right for me?

Is Term right for me?

Is Whole right for me?

Is Universal right for me?

Guaranteed Universal

Is Guaranteed Universal right for me?

Don’t

Commonly Asked Questions About Collateral Assignments

Is Collateral Assignment Right For Me?

Final Thoughts

Heidi Mertlich

Related Content

Best Whole Life Insurance Companies

Collateral Assignment for Life Insurance: A Comprehensive Guide

Table of Contents

When Is Collateral Assignment Used?

How Life Insurance Collateral Works

Term vs. Permanent Life Policies

Current vs. New Policies

Assignees vs. Beneficiaries

Should You Consider Using Your Life Insurance as Collateral?

Pros

Cons

Alternatives to Collateral Assignment

Utilize a Life Insurance Cash Value Loan

Cash Surrender

Take Out a Home Equity Loan

Take Out an Unsecured Loan

Take Out a Term Life Insurance Policy

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What Is Collateral Assignment of Life Insurance?

Related Content

How Collateral Assignment of Life Insurance Works

Applying for Collateral Assignment

Obtain a Collateral Assignment Form

Fill Out the Form Correctly

Signed by Both Policyholder and Lender