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Collateral Assignment of a Life Insurance Policy

Seeking approval for a loan can sometimes be dependent on certain requirements. Some lenders require an assignment of life insurance as a condition of loan approval. 

To protect the lender/assignee, notification must be sent to the life insurance company that the assignment has been made. The collateral assignment of a life insurance policy is similar in concept to mortgaging real property, the owner would retain the ownership rights of the policy but the death benefit of the policy must be used firstly to satisfy the debt owning to the lender. Once the outstanding debt has been paid off the balance would be remitted to the designated beneficiary.

Collateral assignment of a policy should not be confused with absolute assignment. In that case every right of the policy is given to the assignee and you would have no further interest in the policy. 

Requesting collateral assignment of your life insurance policy is rather simple, unless there is a limitation specified in your contract, the insurance company can provide the required assignment forms.