What does Collateral Assignment involve?

Collateral assignment refers to a situation in which a policyholder transfers certain rights of their life insurance policy to a lender or another party as collateral for a loan or obligation. This does not mean that the original policyholder relinquishes all their rights to the policy; instead, it signifies a partial transfer of rights.

In a collateral assignment, the lender may have the right to receive a portion of the death benefit or certain benefits from the policy but does not take full ownership of it. The policyholder retains the primary ownership, including the right to change beneficiaries and make premium payments, until the loan obligation is satisfied.

This setup allows policyholders to utilize their life insurance as a financial asset while still maintaining control over the policy itself. The correct understanding of collateral assignment highlights its role in financial agreements and obligations, distinguishing it from total assignments where policy rights are entirely transferred away from the original policyholder.