Collateral Assignment Life Insurance Information [Top 8 Tips]

Permanent Life Insurance

Permanent life insurance will last your entire life. Permanent life insurance can provide a death benefit and can build cash value.

Types of Permanent Life Insurance

There are many types of permanent life insurance. The most common are:

The cash value of a permanent life insurance policy is the collateral and can include either whole or universal life policies. Specified cash value on a permanent life insurance policy lets the lender access those funds as a loan repayment if the borrower defaults. The policy owner has limited access to the cash value to protect the collateral.

permanent life insurance for lifetime coverageIf the loan is repaid prior to the death of the borrower, the assignment is taken away, and the lender doesn’t have any access to the life insurance death benefit.

In comparison to an absolute assignment — which essentially assigns the policy as is, without any way of reversing it – the collateral assignment acts as more of a restricted kind of transfer.

If you were to pass away prior to the repayment of a loan, the lender acquires the balance that is owed via the death benefit. The outstanding balance is then sent to the remaining beneficiaries specified. The policy must remain current, so you must stay on top of keeping the premiums paid throughout the loan’s lifetime.

Further, you won’t be able to access the cash value (assuming you have a universal or whole life policy) in order to safeguard the collateral.

If the loan is repaid prior to your death, the lender won’t be the beneficiary anymore and will not receive the death benefit. Cash value assignments are alluring to lenders since the finances can be re-obtained without the borrower passing away.

The cash value life insurance company needs to be informed of a policy’s collateral assignment, but aside from keeping the contract terms updated, they hardly have any authority or involvement in the agreement.

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