CARD T115
Assignment
Transfer of some or all policy rights to another party. Assigning a policy differs from merely naming a beneficiary.
How it works
Assignment transfers policy rights from an assignor to an assignee. It can transfer all transferable rights or only rights securing a debt. Follow the policy’s notice requirements and applicable restrictions. Assignment is different from beneficiary designation: a beneficiary receives proceeds, while an assignee may acquire ownership or security rights. [19]
An owner assigns limited rights to a lender as collateral. That does not necessarily give the lender every ownership right or the entire death benefit.
Assignor transfers rights. Assignee receives rights. The scope of the assignment controls.
CARD T116
Absolute Assignment
Transfer of all transferable ownership rights in a policy. The assignee becomes the holder of those rights.
How it works
An absolute assignment transfers all transferable ownership rights to the assignee, subject to existing restrictions and rights. The new holder may exercise rights such as beneficiary designation or surrender as allowed. The insured life ordinarily remains the same. A transfer can have tax and legal consequences, especially when value is exchanged. [19]
An owner transfers all transferable rights to a trust. The trust holds the owner rights; the person whose life is insured remains the insured.
Absolute concerns the scope of rights transferred, not a change in whose death is insured.
CARD T117
Collateral Assignment
Transfer of limited policy rights to secure an obligation. A lender may receive only the amount needed to satisfy a covered debt.
How it works
Collateral assignment gives a creditor limited rights to secure an obligation. At a covered death, the assignee generally has priority for the secured amount, and remaining proceeds go under the beneficiary designation. Once the debt is satisfied, the security interest should be released under the agreement. It is not automatically an absolute transfer of every right. [19]
Net proceeds before the collateral claim are $100,000 and the secured debt is $25,000. The lender receives $25,000; the beneficiary receives $75,000, assuming no other claims.
The lender’s secured interest is not necessarily the full face amount.
APPLY THE TERMS
Practice questions
Select an answer, then check it to see why each option is right or wrong.
T115 · Assignment
0 of 3 answered
T116 · Absolute Assignment
0 of 3 answered
T117 · Collateral Assignment
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Sources & further reading
Original explanations and practice scenarios informed by the following regulatory, legal, and product resources. State examples are not presented as nationwide deadlines or requirements.