assignment clause in a life insurance policy

Collateral assignment of life insurance

Advertiser disclosure.

We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.

Our content is backed by Coverage.com, LLC, a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in states where it is licensed . Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.

How We Make Money

The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.

• Share this article on Facebook Facebook
• Share this article on Twitter Twitter
• Share this article on LinkedIn Linkedin
• Share this article via email Email

At Bankrate, we take the accuracy of our content seriously.

“Expert verified” means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board comprises a panel of financial experts whose objective is to ensure that our content is always objective and balanced.

Their reviews hold us accountable for publishing high-quality and trustworthy content.

• • Auto insurance
• • Life insurance
• Connect with Mary Van Keuren on LinkedIn Linkedin
• Get in contact with Mary Van Keuren via Email Email

• Connect with Natasha Cornelius, CLU on LinkedIn Linkedin

The Bankrate promise

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity , this post may contain references to products from our partners. Here's an explanation for how we make money . This content is powered by HomeInsurance.com (NPN: 8781838). For more information, please see our Insurance Disclosure .

Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.

Bankrate follows a strict editorial policy , so you can trust that we’re putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts , who ensure everything we publish is objective, accurate and trustworthy.

Our banking reporters and editors focus on the points consumers care about most — the best banks, latest rates, different types of accounts, money-saving tips and more — so you can feel confident as you’re managing your money.

Editorial integrity

Bankrate follows a strict editorial policy , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.

Key Principles

We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.

Editorial Independence

Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information.

How we make money

You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey.

Bankrate follows a strict editorial policy , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers.

We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money.

Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service.

Insurance Disclosure

This content is powered by HomeInsurance.com, a licensed insurance producer (NPN: 8781838) and a corporate affiliate of Bankrate.com. HomeInsurance.com LLC services are only available in states where it is licensed and insurance coverage through HomeInsurance.com may not be available in all states. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.

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.

Related Articles

What is collateral insurance and how does it work?

What does life insurance cover?

What is an irrevocable beneficiary?

Life insurance death benefits

• Search Search Please fill out this field.
• Life Insurance
• 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.

Progressive. " Collateral Assignment of Life Insurance ."

Fidelity Life. " What Is a Collateral Assignment of a Life Insurance Policy? "

Kansas Legislative Research Department. " Collateral Assignment of Life Insurance Proceeds ."

• Terms of Service
• Editorial Policy
• Privacy Policy
• Your Privacy Choices

Policygenius does not allow the submission of personal information by users located within the EU or the UK. If you believe this action is in error, or have any questions, please contact us at [email protected]

Absolute Assignment of Life Insurance Policies

An absolute assignment transfers all ownership rights of a life insurance policy.

PhotoObjects.net/PhotoObjects.net/Getty Images

More Articles

•   1. What Is the Assignment of Insurance Benefits?
•   2. What Is a Life Insurance Assignment?
•   3. Does Life Insurance Count Towards the Two Million for Federal Estate Tax?

An absolute assignment of a life insurance policy involves transferring all rights and ownership decisions to another party. You could have one of several reasons for wanting to do this; for example, using the policy as collateral for a loan, or making a donation to your favorite charity at death. Making an absolute assignment is relatively simple as long as your life insurance policy allows it.

How Transfer of Ownership Works

Absolute assignment is akin to a transfer of ownership, in that you are giving all ownership rights to another party. Although you remain the insured under the contract, the new party can change the beneficiary (usually to itself), it can make decisions about investment options of a whole-life policy, and it can take any other action that does not jeopardize the policy's in-force status. You remain responsible for the premium payments, and you could be in breach of the assignment provisions if you don't pay them.

Collateral Loan Bank Assignment

Absolute assignment of life insurance is often done when a person applies for a loan. If the bank is concerned that the loan might not be repaid if you died, if might require a life policy with an absolute assignment to the bank. The bank names itself the beneficiary of the policy up to the amount of the loan balance. Any residual death benefit would go to your named beneficiary.

Financing a Charitable Gift

Another use of absolute assignment is to make a charitable gift. This approach is gaining in popularity.

Life insurance is often purchased to finance a charitable donation by the estate of a deceased individual. One drawback to this approach is that the entire gift goes through the estate and might incur probate delays and fees.

The use of an absolute assignment streamlines the process, as the charity can name itself the beneficiary of the policy. The charity can issue you a tax receipt for every premium, which you can deduct as a charitable contribution.

Absolute Assignment Legal Considerations

Insurance companies freely provide assignment forms that are straightforward and easy to fill out. Once an assignment is complete, a copy of the form should be filed with the insurance company.

The life insurance company may withhold part of its payout to any beneficiary -- including a newly designated one -- if a premium hasn't been fully paid, or because of other indebtedness. That might have legal ramifications for you and the assignee, in which the insurance company will take no part.

• Standard Life Insurance Co. of New York: Absolute Assignment Form
• Waypoint Partners: Assigning Your Life Insurance Policy
• Collateral Assignment Agreement

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.

Related Articles

What is the assignment of insurance benefits, what is a life insurance assignment, does life insurance count towards the two million for federal estate tax, what happens to homeowner's insurance when a person dies, what is the collateral assignment of a life insurance policy, borrowing as a beneficiary from an irrevocable life insurance trust, how to change the maturity date on whole life insurance policy, can you change the owner of a nonqualified annuity, how to cancel an irrevocable trust life insurance policy, how do i set up a trust fund with a life insurance policy, tax consequences of changing beneficiaries on a life insurance policy, how much can i borrow against cash value.

Zacks Research is Reported On:

Zacks Investment Research

is an A+ Rated BBB

Accredited Business.

Copyright © 2024 Zacks Investment Research

At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. Since 1986 it has nearly tripled the S&P 500 with an average gain of +26% per year. These returns cover a period from 1986-2011 and were examined and attested by Baker Tilly, an independent accounting firm.

Visit performance for information about the performance numbers displayed above.

NYSE and AMEX data is at least 20 minutes delayed. NASDAQ data is at least 15 minutes delayed.

• Search Search Please fill out this field.
• Building Your Business
• Business Insurance

Can You Assign Your Insurance Benefits to Someone Else?

Monashee Frantz / Getty Images

Most business insurance policies contain a so-called anti-assignment clause. This clause prohibits policyholders from transferring any of their rights under the policy to someone else. This means that the insured business cannot cede its right to collect claim payments to another party. However, laws in most states permit policyholders to transfer their rights to another party under certain circumstances.

Anti-Assignment Clause

In the standard ISO policies , the anti-assignment clause is located in a separate form called the Common Policy Conditions. These conditions apply to all coverages that are included in the policy. For instance, if a policy includes business auto , general liability , and commercial property coverages, the anti-assignment clause applies to all three coverages.

The clause is entitled Transfer of Your Rights and Duties Under This Policy. It includes the following provision:

Your rights and duties under this policy may not be transferred without our written consent except in the case of death of an individual named insured.

The anti-assignment clause prohibits the  named insured from transferring any of its rights or obligations under the policy to someone else without the insurer's permission. The only exception is if the named insured is an individual (sole proprietor) and he or she dies. An assignment is permitted in this case because a sole proprietorship and the individual owner are one and the same. If the individual dies, the business cannot survive unless it is sold to someone else.

An anti-assignment clause is intended to prevent the insurer from unwittingly assuming risks it never intended to take on. Commercial insurers review business insurance applicants carefully. Before they issue policies, underwriters consider the knowledge and experience of a company's owners and managerial staff. If a business is sold to someone else, the new owners may not be as skilled or attentive as the previous ones. From the insurer's perspective, the new owners are an unknown risk.

Post-Loss Assignments Permitted

The anti-assignment clause doesn't distinguish between assignments made before a loss and those made afterward. Even so, courts in most states have allowed policyholders to assign their rights to another party after a loss has occurred. Pre-loss assignments are still prohibited. Here is an example of a post-loss assignment of insurance benefits.

Victor operates a restaurant called Vital Vittles out of a building he owns. Late one January night two water pipes in the building freeze. The pipes subsequently burst, causing considerable water damage to Victor's building. Victor is forced to close his restaurant until the repairs are completed.

Victor hires a water damage contractor called Rapid Restoration to repair the damage to his building. He tells the contractor that he needs the repairs done quickly as he is anxious to reopen his restaurant. The contractor says that the repairs can be expedited if Victor signs over his rights under the policy to Rapid Restoration. The contractor will then proceed with the repairs and negotiate a claim settlement with Vital Vittles' commercial property insurer. Victor agrees to the assignment and the contractor begins the repair work.

While Vital Vittles' commercial property policy contains an anti-assignment clause, Victor has assigned his rights to Rapid Restoration after a loss has occurred. Thus, in most states, Victor's insurer cannot reject the assignment (assuming post-loss assignments are permitted in Victor's state).

Problems With Assignments of Benefits

In recent years, assignment of benefits (AOB) agreements have been problematic in some states, particularly Florida. Unscrupulous contractors have preyed on unsuspecting homeowners and business owners who have suffered water damage . Some contractors work alone while others operate in cahoots with crooked lawyers. In either event, the contractor convinces the policyholder to assign his or her rights under the policy over to the contractor. The contractor then exaggerates the cost of the repairs and collects the inflated amount from the insurer. The policyholder is left with a large claim on his or her loss history. When the policy expires, the insurer may refuse to renew it.

In the previous example, Victor has assigned his rights under the policy to Rapid Restoration. Suppose that Rapid Restoration completes only half of the repair work on Victor's building. The actual cost is $15,000 but the contractor submits a bill to the insurer for $30,000. Alternatively, the contractor never submits a bill but sues the insurer for $30,000. In either case, the insurer may refuse to pay on the basis that the contractor has committed insurance fraud. Victor cannot intervene because he has signed his rights over to the contractor. If the contractor is unsuccessful in its lawsuit against the insurer, it may demand payment from Victor's company.

Avoiding Problems With AOBs

As a business owner, you can avoid problems associated with AOBs and unscrupulous contractors by taking the following steps:

• Report any loss or accident directly to your insurer (or your agent or broker ). Notify your insurer immediately. Don't allow a contractor to do the notification on your behalf.
• Take photos of the damage.
• Don't allow any contractor to begin work until an insurance adjuster has documented the damage
• Vet contractors thoroughly before hiring them. Make sure they are properly licensed. If your area has suffered a natural disaster, watch out for construction scams.
• Don't sign an AOB unless you have reviewed it carefully. If you don't understand it, ask your agent, insurer, or attorney for assistance.
• If your contractor won't do any work until you've signed an AOB, find another contractor.

AOBs in Health Insurance

Assignment of benefit agreements are common in health insurance. Patients are often asked to agree to such clauses before they receive treatment from a physician, hospital, or another healthcare provider. The assignment of benefits clause transfers a patient's right to collect benefits under his or her health policy to the provider. By signing the document, the patent agrees that payments will be made directly to the provider for the services rendered. The clause states that the patient is ultimately responsible for the charges if the insurer fails to pay.

Once the treatment has been performed, the provider submits the AOB along with a claim to the patient's health insurer. The insurer pays the provider for services rendered to the patient.

Financial Tips, Guides & Know-Hows

Home > Finance > What Does The Ownership Clause In A Life Insurance Policy State?

What Does The Ownership Clause In A Life Insurance Policy State?

Published: October 16, 2023

Learn what the ownership clause in a life insurance policy entails and how it can impact your finances.

(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 )

Table of Contents

Introduction, understanding the ownership clause, key elements of the ownership clause, rights and responsibilities of the policy owner, transferring ownership of a life insurance policy, update and change of ownership, effect of ownership on policy proceeds, beneficiary designation and ownership, tax implications and ownership of life insurance policies.

When purchasing a life insurance policy, it is important to understand the various clauses and provisions that govern the policy. One such clause that holds significant importance is the ownership clause. The ownership clause defines the legal rights and responsibilities of the policy owner, including the ability to control the policy’s terms and make decisions regarding its beneficiaries.

The ownership clause is a fundamental aspect of a life insurance policy, as it determines who has the authority to exercise control and make modifications to the policy. This clause plays a crucial role in shaping the policy’s overall flexibility and adaptability to the policy owner’s changing needs and circumstances.

Understanding the ownership clause is vital, as it empowers policyholders to make informed decisions about their life insurance coverage. It also has implications for aspects such as tax planning, policy loans, and the ability to transfer ownership in the future. In this article, we will delve into the intricacies of the ownership clause in a life insurance policy, exploring its key elements, rights and responsibilities of the policy owner, transferring ownership, and its effect on policy proceeds.

By gaining a deep understanding of the ownership clause and its implications, policyholders can maximize the benefits of their life insurance policies and ensure that their coverage aligns with their long-term financial goals.

The ownership clause is a provision within a life insurance policy that determines who has legal ownership and control over the policy. It outlines the rights and responsibilities of the policy owner, including the ability to modify the policy, select beneficiaries, and make decisions regarding policy proceeds. The ownership clause is a critical component of a life insurance policy, as it establishes the framework for how the policy operates.

Under the ownership clause, the policy owner is typically the individual who purchases the policy or someone to whom the ownership has been transferred. The policy owner holds the power to make changes and decisions regarding the policy, including beneficiaries, premium payments, and policy loans.

It’s important to note that the policy owner and the insured individual are not always the same person. For example, someone may purchase a life insurance policy on behalf of their child, in which case they would be the policy owner, and the child would be the insured individual.

The ownership clause also establishes the policy owner’s rights and responsibilities regarding premium payments. The policy owner is responsible for ensuring timely premium payments, as failure to do so may result in the policy lapsing or losing certain benefits.

Furthermore, the ownership clause may specify restrictions on the minimum age a person must reach to own a policy, as well as any limitations on transferring ownership. This clause is essential to protect the interests of all parties involved and maintain the integrity of the policy.

By clearly understanding the ownership clause, policyholders can make informed decisions about their life insurance coverage. They can exercise control over the policy, select beneficiaries based on their evolving needs, and make adjustments to better align with their long-term financial goals.

The ownership clause of a life insurance policy contains several key elements that define the rights and responsibilities of the policy owner. Understanding these elements is crucial for policyholders to make informed decisions and effectively manage their life insurance coverage. Let’s explore the key elements of the ownership clause:

• Policy Owner: The ownership clause specifies who has legal ownership and control over the life insurance policy. The policy owner can be an individual or an entity, such as a trust or corporation.
• Ownership Transfer Restrictions: The clause may outline any limitations or conditions on transferring ownership of the policy. Transferring ownership often requires the consent of the insurance company and may involve completing specific forms and documentation.
• Change of Ownership: The ownership clause may specify the process and requirements for changing ownership of the policy. This could include completing a change of ownership form or obtaining written consent from the current policy owner.
• Beneficiary Designation: The ownership clause typically addresses beneficiary designation. It outlines the policy owner’s right to select and change beneficiaries, including primary and contingent beneficiaries. The policy owner has the authority to designate who will receive the death benefit upon their passing.
• Policy Modifications: The ownership clause grants the policy owner the ability to modify certain policy details, such as the coverage amount, premium payment frequency, and policy riders. This allows policyholders to adjust their coverage to meet changing financial and personal circumstances.
• Policy Loans: The clause may include provisions regarding the policy owner’s ability to take out loans against the cash value of the policy. Policy loans can provide access to funds for various purposes, with the policy’s cash value serving as collateral.
• Policy Surrender: The ownership clause details the policy owner’s rights to surrender the policy in exchange for the cash value. Surrendering the policy terminates coverage and may result in taxation on any gains.
• Policy Lapse: The ownership clause outlines the consequences of failure to pay premiums, which may result in the policy lapsing or losing certain benefits. It is the policy owner’s responsibility to ensure timely premium payments to maintain coverage.

Understanding these key elements of the ownership clause empowers policyholders to make informed decisions about their life insurance coverage. It provides flexibility and control over the policy’s terms and conditions, allowing for adjustments that align with the policy owner’s evolving needs and goals.

The ownership clause in a life insurance policy grants specific rights and responsibilities to the policy owner. These rights and responsibilities play a pivotal role in managing the policy effectively. Let’s explore the key rights and responsibilities of the policy owner:

1. Control over Policy: As the policy owner, you have the right to make decisions regarding the policy. This includes selecting beneficiaries, modifying coverage and premium payments, and accessing policy details and statements. You have the power to shape and tailor the policy to meet your changing financial goals and circumstances.

2. Premium Payments: The policy owner is responsible for ensuring timely premium payments. It is your duty to keep your policy in force by paying premiums regularly. Failure to do so may result in the policy lapsing or losing certain benefits. Understand your payment obligations and make necessary arrangements to meet them.

3. Beneficiary Designation: The ownership clause allows the policy owner to designate primary and contingent beneficiaries. This means you have the authority to decide who will receive the death benefit upon your passing. Review and update your beneficiary designation periodically to ensure it aligns with your wishes and any changes in your personal circumstances.

4. Policy Modifications: You have the right to modify certain aspects of the policy, such as the coverage amount, premium payment frequency, and policy riders. This gives you the flexibility to adjust the policy to meet your evolving needs. However, be mindful of any costs, restrictions, or potential impact on the policy’s performance when making modifications.

5. Access to Policy Loans: Depending on the policy type, you may have the right to access policy loans. Policy loans allow you to borrow against the cash value of the policy for various purposes, such as emergency expenses, education, or retirement planning. Be aware of the terms, interest rates, and potential impact on the policy’s performance before pursuing a policy loan.

6. Policy Surrender: The policy owner has the right to surrender the policy in exchange for the cash value. Surrendering the policy terminates the coverage and may result in taxation on any gains. Consider the financial implications and assess alternatives before deciding to surrender the policy.

7. Estate Planning: As the policy owner, you have the opportunity to incorporate the life insurance policy into your estate planning strategy. This may involve placing the policy in a trust, designating specific beneficiaries, or considering tax implications. Consult with an estate planning professional to maximize the benefits of your life insurance policy within your overall estate planning framework.

Understanding and exercising these rights and responsibilities as the policy owner empowers you to manage your life insurance policy effectively. It ensures your coverage remains aligned with your financial goals, provides protection for your loved ones, and secures a solid foundation for your future.

The ownership of a life insurance policy can be transferred from one party to another under certain circumstances. Transferring policy ownership involves transferring the rights and responsibilities of the policy owner to a new individual or entity. Let’s explore the process, requirements, and considerations when transferring ownership of a life insurance policy:

1. Consent and Documentation: Generally, transferring ownership requires the consent of the insurance company. The policy owner must complete the necessary forms and provide the required documentation to initiate the transfer process.

2. Policy Assignment: The most common method of transferring ownership is through a policy assignment. The policy owner assigns their rights and interests in the policy to another individual or entity. This can be done through a written agreement and by submitting a formal assignment form to the insurance company.

3. Assignee Qualifications: The assignee, or the new policy owner, must meet the qualifications set by the insurance company. These qualifications can include minimum age requirements, insurable interest, and ability to assume the responsibilities of ownership.

4. Tax Implications: Transferring ownership of a life insurance policy may have tax implications. Consult with a tax professional to understand any potential tax consequences, such as gift taxes or capital gains taxes, and ensure compliance with applicable regulations.

5. Policy Loans and Outstanding Obligations: Before transferring ownership, consider any outstanding policy loans or obligations associated with the policy. Both the current policy owner and the assignee should review and address any outstanding loans or obligations to ensure a smooth transfer process.

6. Beneficiary Designation: Transferring ownership does not automatically alter the beneficiary designation. The new policy owner can choose to maintain the existing beneficiaries or make changes as necessary. It is important to review and update the beneficiary designation to reflect the new ownership.

7. Comprehend the Consequences: Understand the implications of transferring ownership. Once the transfer is complete, the new policy owner assumes all rights, responsibilities, and decision-making authority over the policy. Carefully consider the impact on policy terms, premium payments, and future modifications.

8. Seek Professional Guidance: Transferring ownership of a life insurance policy can be complex, and it is advisable to seek the guidance of a financial advisor or an insurance professional throughout the process. They can provide specific insights and ensure that all necessary steps are taken with accordance to relevant regulations and requirements.

Transferring ownership of a life insurance policy can be beneficial in certain situations, such as estate planning, business succession, or changing personal circumstances. By following the necessary procedures and seeking professional guidance, policyholders can navigate the transfer process smoothly and ensure the policy continues to serve its intended purpose.

Life circumstances and financial needs can change over time, prompting policyholders to consider updating or changing the ownership of their life insurance policies. Whether it’s a change in marital status, the birth of a child, or a desire to pass on the policy to a loved one, understanding the process of updating and changing ownership is essential. Let’s explore the key considerations and steps involved in updating or changing the ownership of a life insurance policy:

1. Review Policy Terms: Start by reviewing the terms and conditions of your life insurance policy. Understand any restrictions or provisions related to updating or changing ownership. Familiarize yourself with the requirements set by the insurance company.

2. Consult with the Insurance Company: Contact your insurance company and inform them of your intent to update or change the policy ownership. They will guide you through the necessary steps and provide the required forms and documentation.

3. Complete Ownership Change Forms: Fill out the appropriate ownership change forms provided by the insurance company. These forms typically require details of the new policy owner and may require signatures from both the current policy owner and the new owner.

4. Consent of Current Owner: If there is a change in policy ownership, the current policy owner must consent to the transfer. This consent is typically documented through signatures on the ownership change forms.

5. Submission of Documentation: Submit the completed ownership change forms along with any supporting documentation required by the insurance company. This may include identification documents and proof of relationship for the new policy owner.

6. Beneficiary Designation: Consider reviewing and updating the beneficiary designation on the policy. Changing ownership does not automatically alter the beneficiaries. Ensure the new policy owner reviews and updates the beneficiary designation as desired.

7. Assess Tax Implications: Understand the potential tax implications of updating or changing ownership. Depending on the specific circumstances, tax consequences such as gift taxes or capital gains taxes may arise. Consult with a tax professional to minimize any adverse tax consequences.

8. Seek Professional Guidance: It’s advisable to seek guidance from a financial advisor or insurance professional throughout the process of updating or changing ownership. They can provide personalized advice, ensure compliance with all requirements, and help maximize the benefits of the life insurance policy.

Updating or changing the ownership of a life insurance policy allows policyholders to reflect their current financial and personal circumstances. By following the appropriate procedures and seeking professional guidance, policyholders can ensure a seamless transition while maintaining the intended purpose and benefits of the life insurance coverage.

The ownership of a life insurance policy has a significant impact on how the policy proceeds are distributed upon the insured individual’s death. Understanding the effect of ownership on policy proceeds is crucial for both the policy owner and the beneficiaries. Let’s explore how ownership can affect the distribution of policy proceeds:

1. Beneficiary Designation: The policy owner has the authority to designate the primary and contingent beneficiaries of the life insurance policy. These are the individuals or entities who will receive the death benefit upon the insured individual’s passing. The ownership of the policy does not typically impact the chosen beneficiaries.

2. Policy Ownership and Beneficiary: In some cases, the same person may be the policy owner and the designated beneficiary. In this case, the policy owner can simply name themselves as the beneficiary to receive the policy proceeds. The ownership and beneficiary designation can be aligned.

3. Policy Ownership and Estate Planning: When a policy owner passes away, the policy proceeds may become part of their estate. If the policy is owned by the insured individual, it may be subject to probate and potential estate taxes. Proper estate planning can help minimize these effects and ensure smooth distribution to the intended beneficiaries.

4. Transfer of Ownership and Policy Proceeds: Transferring ownership of a life insurance policy does not change the beneficiary designation. The policy proceeds will still be distributed to the designated beneficiaries unless changes are made by the new policy owner.

5. Tax Implications: The ownership of a life insurance policy can have tax implications. In most cases, the death benefit paid to the beneficiary is income tax-free. However, if the policy is owned by a different individual or entity other than the insured, the policy proceeds could potentially be subject to estate taxes, gift taxes, or income taxes. Consult with a tax professional to understand the specific tax implications related to policy ownership and policy proceeds.

6. Estate Equalization: In some cases, a life insurance policy is used as a tool for estate equalization. For example, if one beneficiary is set to inherit a larger portion of the estate, the policy owner can designate another beneficiary as the policy beneficiary to help balance the distribution of assets.

7. Change in Policy Ownership and Proceeds: If the ownership of a policy is changed, it does not affect the distribution of policy proceeds unless the new policy owner makes changes to the beneficiary designation. It is important for the new policy owner to review and update the beneficiary designation if necessary.

Understanding the effect of ownership on policy proceeds is essential for ensuring that the intended beneficiaries receive the life insurance benefits as desired. Consult with a financial advisor or an insurance professional to navigate the complexities of ownership and its impact on the distribution of policy proceeds.

When it comes to life insurance policies, the beneficiary designation is a crucial aspect that works hand in hand with the ownership clause. The beneficiary designation determines who will receive the policy proceeds upon the insured individual’s death. Understanding the relationship between beneficiary designation and ownership is vital in ensuring the effective distribution of the life insurance benefits. Let’s explore how these two elements interrelate:

1. Policy Owner’s Control: As the policy owner, you have the authority to designate the primary and contingent beneficiaries of the life insurance policy. This means that you have the power to choose who will receive the death benefit. The beneficiary designation is a separate provision from the ownership clause, allowing you to specify beneficiaries regardless of the ownership arrangement.

2. Flexibility for Changing Beneficiaries: The ownership clause enables you, as the policy owner, to make changes to the beneficiary designation over time. As your circumstances change, such as marriage, divorce, or the birth of children, you can update the beneficiary designation form to reflect your current wishes. It is important to regularly review and update this information to ensure it aligns with your intentions and any changes in your life.

3. Independent of Ownership: The beneficiary designation is independent of the ownership of the policy. Even if the ownership of the policy changes hands, the beneficiary designation remains as initially selected by the policy owner. It is essential to update the beneficiary designation in the event of a change in policy ownership, if desired, to ensure it aligns with the new policy owner’s intentions.

4. Contingent Beneficiaries: Alongside primary beneficiaries, the policy owner has the option to designate contingent beneficiaries. These individuals or entities will receive the death benefit if the primary beneficiaries predecease the insured individual or are unable to receive the proceeds for any reason. Contingent beneficiaries help ensure a smooth and effective transfer of the policy proceeds to the intended recipients.

5. Policy Proceeds and Beneficiary Designation: When the insured individual passes away, the policy proceeds are paid out to the beneficiaries designated by the policy owner. The ownership of the policy does not impact the distribution of the proceeds to the beneficiaries, as long as the beneficiary designation is properly established and maintained.

6. Review and Update Regularly: Beneficiary designations should be reviewed periodically to ensure they align with your current wishes and circumstances. Life events, such as the birth of a child, marriage, divorce, or the loss of a loved one, may necessitate changes to the beneficiary designation. Regularly reviewing and updating this information helps ensure that the intended beneficiaries receive the life insurance benefits.

7. Seek Professional Advice: It is recommended to consult with a financial advisor or an insurance professional to navigate the intricacies of beneficiary designation and ownership. They can provide valuable insights and assist you in reviewing and updating beneficiary designations, taking into account any legal or tax considerations specific to your situation.

Understanding the relationship between beneficiary designation and ownership ensures that your life insurance benefits are distributed according to your wishes. Regularly reviewing and updating your beneficiary designations, along with seeking professional advice, creates a solid foundation for effective estate planning and providing financial protection for your loved ones.

The ownership of a life insurance policy can have various tax implications that policyholders should be aware of. Understanding the tax considerations associated with policy ownership is crucial for effective financial planning and managing potential tax liabilities. Let’s explore the key tax implications of owning a life insurance policy:

1. Death Benefit: In most cases, the death benefit paid out to the beneficiaries of a life insurance policy is generally not subject to income tax. The proceeds are typically received tax-free by the named beneficiaries.

2. Estate Taxes: If the policy owner is also the insured individual and retains ownership of the policy until death, the death benefit may become part of their taxable estate. Depending on the size of the estate and applicable exemption thresholds, estate taxes may apply. Proper estate planning, such as placing the policy in an irrevocable trust, can help mitigate potential estate tax liabilities.

3. Gift Taxes: Transferring ownership of a life insurance policy for no consideration or to someone other than the policyholder may trigger gift tax implications. The value of the policy at the time of transfer could be considered a gift and may be subject to gift taxes. Consult with a tax professional to ensure compliance with gift tax regulations.

4. Collateral Assignment: In certain situations, a policy owner may assign the policy as collateral for a loan. The assignment of the policy as collateral does not carry tax implications in itself. However, policyholders should be aware that if the loan is not repaid, it could result in taxable income. This typically occurs if the outstanding loan balance exceeds the policy’s cash surrender value when the policy terminates.

5. Policy Loans: Policy loans, when taken against the cash value of a policy, are generally not taxable. The loan proceeds are not considered taxable income as they are borrowed against the policy’s cash value. However, if the policy lapses or is surrendered with an outstanding policy loan balance, the amount of the loan could be treated as taxable income.

6. 1035 Exchanges: A 1035 exchange allows policyholders to transfer the cash value of an existing life insurance policy to a new policy without immediate tax consequences. This exchange is tax-free, provided that certain requirements are met, such as transferring the cash value directly between the insurance companies and maintaining the same insured individual.

7. Premium Payments with Pre-Tax Dollars: In most cases, life insurance premiums are paid with after-tax dollars. However, certain employer-sponsored policies may allow for premium payments with pre-tax dollars. Such policies are typically subject to taxation upon receiving benefits and may have different tax implications. Consult with a tax professional or benefits administrator to clarify the tax treatment of premiums.

It is crucial to consult with a qualified tax professional or financial advisor to understand the specific tax implications of owning a life insurance policy based on your unique circumstances and jurisdiction. They can provide personalized guidance to help minimize tax liabilities, maximize benefits, and ensure compliance with applicable tax laws.

Understanding the ownership clause in a life insurance policy is crucial for policyholders to make informed decisions, exercise control, and maximize the benefits of their coverage. The ownership clause defines the legal rights and responsibilities of the policy owner, including the ability to modify the policy, select beneficiaries, and make decisions regarding policy proceeds.

Throughout this article, we have explored various aspects of the ownership clause, including its key elements, the rights and responsibilities of the policy owner, transferring ownership, the effect of ownership on policy proceeds, beneficiary designation, and tax implications.

By comprehending the ownership clause, policyholders can effectively navigate the complexities of life insurance policies. They can make informed decisions that align with their changing needs, review and update beneficiary designations, and seek professional advice to understand the tax implications associated with policy ownership.

Remember, the ownership clause provides a solid foundation for managing life insurance coverage and ensuring that the intended beneficiaries receive the policy proceeds. Regularly reviewing and updating policy details, consulting with experts, and staying informed about changes in tax laws can help policyholders make the most of their life insurance policies.

Ultimately, a comprehensive understanding of the ownership clause empowers policyholders to protect their loved ones, achieve their financial goals, and secure a solid foundation for the future.

Our Review on The Credit One Credit Card

20 Quick Tips To Saving Your Way To A Million Dollars

How Long Does Available Credit Take To Update

Enhancing EFL Learning: Innovative Strategies with Video and Community Engagement

Latest articles.

Understanding XRP’s Role in the Future of Money Transfers

Written By:

Navigating Post-Accident Challenges with Automobile Accident Lawyers

Navigating Disability Benefits Denial in Philadelphia: How a Disability Lawyer Can Help

Preparing for the Unexpected: Building a Robust Insurance Strategy for Your Business

Custom Marketplace Development: Creating Unique Online Shopping Experiences

Related post.

By:  •  Finance

Please accept our Privacy Policy.

We uses cookies to improve your experience and to show you personalized ads. Please review our privacy policy by clicking here .

• https://livewell.com/finance/what-does-the-ownership-clause-in-a-life-insurance-policy-state/

Assignment of Life Insurance Policy

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.

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.

• Life Insurance Quotes
• Whole Life Insurance
• Term Life Insurance
• Insurance Calculator
• Insurance Guide
• Insurance FAQ

Get Free Life Insurance Quotes

Or call 1-844-578-0620

What is an Assignee on a Life Insurance Policy?

When people take out a life insurance policy, it’s typically a step taken to prepare your loved ones for life after you pass away. What you may not know is that insurance policies are owned entities, which means they can be used as collateral for a loan or even be sold to offer money to you when you’re in a tough spot. There are also different methods available to do this, which we’ll explain in this article.

An individual who is taking out insurance will have many choices, such as whether you prefer to purchase whole life insurance or term life insurance . You also have choices when it comes to using your policy to leverage money that has already been invested in it.

Part of that is understanding the difference between a collateral assignment and an absolute assignment, so you can be sure to choose the solution that works best with your financial needs. The other part of it involves knowing the most important terms related to an assignment so that you go in with the knowledge you need.

Collateral Assignment of Life Insurance

If you have ever taken out a standard personal loan, a collateral assignment of life insurance has a lot of similarities to that process. The collateral for the loan is the life insurance policy and an organization or individual who pays out the loan is the assignee . They are also the ones who take over the policy on a conditional basis.

One important thing to know is that the assignee cannot resell the policy, make use of its cash value, or make changes to it. The assignee may only take the money for the death benefit if you, as the policyholder, default on the loan.

In the typical situation, if the collateral assignment is standing at your death, the assignee will let the insurance company know about the debt remaining, including interest. They will then be provided with that amount. If there are extra benefits, those will go to your beneficiary listed in the policy.

Absolute Assignment of Life Insurance

Another way to acquire a loan using life insurance is through an absolute assignment. This differs from collateral assignment since instead of using the loan as collateral, you are signing the full policy over to a person or entity. This person or business is considered the assignee, while the person who is selling the policy is the assignor.

The individual who buys the insurance policy gains ownership of the policy. This makes them responsible for the premiums and lets them make changes or choose different beneficiaries .

Each absolute assignment will have different terms based on the contract that is signed. For instance, it might explain that the assignor is transferring all title, rights, and interest in the policy to the assignee. Depending on the insurance company, an ownership clause may be used to make the transfer itself.

Understanding Policy Provisions

To ensure the assignee is protected, the insurance company needs to be notified that an assignment is in place. If the company doesn’t have notice of the assignment, the process might be paid to a beneficiary or a different assignee. This can be an issue since the insurance company will not pay the amount out again to another person.

Many life insurance policies come with policy provisions related to assignments. The most common include:

• The assignment is subject to all indebtedness related to the insurance company regarding the policy.
• The assignment only becomes binding when the original or duplicate is filed at the insurance company’s home office.
• The insurance provider has no responsibility for the sufficiency, effect, or the validity of the assignment.

Because of these provisions, it’s crucial to ensure that you make the assignment correctly. This applies whether it is an absolute assignment or a collateral assignment. The best thing you can do to avoid problems is to speak with an experienced insurance professional who can guide you to the best solution for your needs.

Comparing Assignments Among Life Insurance Policies

If you are in a situation where you need money and it needs to happen quickly, ask yourself whether your cash value in your life insurance policy could help you out. After you decide the answer to that, make sure that you consider the larger picture.

Going with an absolute assignment approach may be able to offer you a large sum of money at one time. However, you also need to realize that your family and loved ones will no longer have the protection that was provided by the policy. If this is a policy that you have been dutifully paying into for decades, losing all the value is something you need to decide whether you’re ready for.

On the other hand, a collateral assignment doesn’t whisk away the policy in its entirety. You can get control of your policy back as soon as you resolve your financial problem and pay back the loan. A collateral assignment is one of the most common ways to borrow from a life insurance policy to use the cash value on necessities.

Collateral assignments let you regain the benefits associated with a long-term life insurance policy at some point in the future. Since most people are familiar with paying off student loans, auto loans, and mortgages, this agreement is similar. Making all of the payments on time can help with both financial concerns in the present as well as creating long-term financial success.

Selecting Between Life Insurance Assignment Options

Every person is unique and will be in a different situation when considering a life insurance assignment. For one person, choosing a collateral assignment might be the right choice since the individual wants the life insurance benefits back after paying off the loan. Someone else may not be interested in those benefits and need a larger amount of money, which an absolute assignment can offer.

You’ll want to consider all your options before borrowing through your life insurance , whether that involves an assignment or another type of loan. Be aware of all of your options and make sure your choice is right for the present and your future financial situation.

Leave a Reply Cancel reply

Please fill all the fields below (your email won't be displaied on the site).

required , will not be published

Help protect yourself with Life Ant

Automated page speed optimizations for fast site performance

• MyNewMarkets.com
• Claims Journal
• Insurance Journal TV
• Academy of Insurance
• Carrier Management

Featured Stories

• Aon Completes $13B Acquisition of NFP
• Chubb CEO: Financial Lines Underwriting ‘Simply Dumb’

Current Magazine

• Read Online

Post-Loss Assignments of Claims Under Insurance Policies

In the settlement of lawsuits involving insured claims, it is not uncommon that one condition of the settlement is that the defendant assign his or her claims under all applicable insurance policies to the party that filed suit.

Indeed, it is frequently the case that the defendant, particularly when the defendant is an individual, has a limited ability to pay a judgment and insurance coverage offers the best opportunity for a recovery by the suing party. Usually, such settlements are made without any serious thought being given to whether the defendant’s claim against its insurer is assignable; the assumption being that it is assignable.

However, insurance policies generally have anti-assignment clauses which prohibit the assignment of the policy, or an interest in the policy, without the insurer’s consent. These clauses come into play in determining the validity or enforceability of the assignment of a claim under an insurance policy and should be considered when such an assignment is part of a settlement.

When considering the enforceability of anti-assignment clauses in insurance policies, the courts generally draw a distinction between an assignment made prior to the occurrence of a covered loss (a “pre-loss” assignment) and an assignment made after the occurrence of a covered loss (a “post-loss” assignment).

In analyzing pre-loss assignments, the courts recognize that requiring an insurer to provide coverage to an assignee of its policy prior to the occurrence of a covered loss would place the insurer in the position of covering a party with whom it had not contracted nor been allowed to properly underwrite to assess the risks posed by that potential insured, and, accordingly, determine the appropriate premium to charge for the risks being undertaken or choose to decline coverage.

Post-loss assignments, on the other hand, take place after the insurer’s obligations under its policy have become fixed by the occurrence of a covered loss, thus the risk factors applicable to the assignee are irrelevant with regard to the covered loss in question. For these reasons, the majority of the courts enforce anti-assignment clauses to prohibit or restrict pre-loss assignments, but refuse to enforce anti-assignment clauses to prohibit or restrict post-loss assignments.

Katrina Cases

The Louisiana Supreme Court, which had not previously addressed the enforceability of anti-assignment clauses for post-loss assignments, was recently confronted with this issue in the In re: Katrina Canal Breaches Litigation, litigation involving consolidated cases arising out of Hurricane Katrina. The issue arose as a result of a lawsuit brought by the State of Louisiana as the assignee of claims under numerous insurance policies as part of the “Road Home” Program. The Road Home Program was set up following Hurricanes Katrina and Rita to distribute federal funds to homeowners suffering damage from the hurricanes. In return for receiving a grant of up to $150,000, homeowners were required to execute a Limited Subrogation/Assignment agreement, which provided in pertinent part:

Pursuant to these Limited Subrogation/Assignments, the State of Louisiana brought suit against more than 200 insurance companies to recover funds dispensed under the Road Home Program. The suit was removed to Federal Court under the Class Action Fairness Act and the insurers filed motions to dismiss, arguing that the assignments to the State of Louisiana were invalid under the anti-assignment clauses in the homeowner policies at issue.

On appeal, the United States Fifth Circuit Court of Appeals certified the following question to the Louisiana Supreme Court: “Does an anti-assignment clause in a homeowner’s insurance policy, which by its plain terms purports to bar any assignment of the policy or an interest therein without the insurer’s consent, bar an insured’s post-loss assignment of the insured’s claims under the policy when such an assignment transfers contractual obligations, not just the right to money due?”

In answering this question, the Louisiana Supreme Court began by noting that, as a general matter, contractual rights are assignable unless the law, the contract terms or the nature of the contract preclude assignment. Specific to the certified question, Louisiana Civil Code article 2653 provides that a right “cannot be assigned when the contract from which it arises prohibits the assignment of that right.” The Louisiana Supreme Court observed that the language of article 2653 is broad and, on its face, applies to all assignments, including post-loss assignments of insurance claims. The Court, therefore, construed the issue confronting it as whether Louisiana public policy would enforce an anti-assignment clause to preclude post-loss assignments of claims under insurance policies.

In addressing the public policy question, the Louisiana Supreme Court recognized the distinction between pre-loss assignments and post-loss assignments discussed by courts from other states and noted that the prevailing view was that anti-assignment clauses were invalid and/or unenforceable when applied to post-loss assignments. Notwithstanding this weight of authority, the Louisiana Supreme Court stated:

“[W]hile the Louisiana legislature has clearly indicated an intent to allow parties freedom to assign contractual rights, by enacting La. C.C. art. 2653, it has also clearly indicated an intent to allow parties freedom to contractually prohibit assignment of rights. We recognize the vast amount of national jurisprudence distinguishing between pre-loss and post-loss assignments and rejecting restrictions on post-loss assignments, however we find no public policy in Louisiana favoring assignability of claims over freedom of contract.”

Thus, Court refused to invalidate the enforceability of the anti-assignment clauses to the post-loss assignments before it based on public policy, adding that public policy determinations are better suited to the legislature.

Nonetheless, after having recognized the general enforceability of anti-assignment clauses to post-loss assignments, the Court immediately placed limits on when those clauses would be applicable, stating that to be applicable, they “must clearly and unambiguously express that the non-assignment clause applies to post-loss assignments.” The Court refused “to formulate a test consisting of specific terms or words,” which would satisfy this condition and remanded the case to the federal courts to determine whether the individual anti-assignment clauses in the various policies were sufficiently clear and explicit to be enforced with respect to post-loss assignments at issue.

A Broad Application

It should be noted that the Court’s opinion appears to apply broadly to all post-loss assignments irrespective of what specific rights are being assigned, despite the fact that the certified question was narrower and asked only about the applicability of a post-loss assignment where the assignment “transfers contractual obligations, not just the right to money due.”

In a footnote at the beginning of its opinion, the Louisiana Supreme Court observed that in certifying the question to it, the Fifth Circuit “disclaimed any intent” that the Court “confine its reply to the precise form or scope of the legal questions certified.” The footnote indicates that the Court’s opinion was not intended to be limited to only those post-loss assignments involving the assignment of contractual obligations.

Louisiana has departed from the majority view in holding that as a matter of general law, anti-assignment clauses are not inherently void with regard to post-loss assignments. However, it may be that in practical application, the results of individual cases may well be consistent with the majority rule of not enforcing anti-assignment clauses with regard to post-loss assignments because Louisiana courts may be reluctant to find that the anti-assignment clauses are sufficiently “clear and explicit” unless they specifically state that they apply to post-loss assignments, notwithstanding the Louisiana Supreme Court’s unwillingness to “formulate a test consisting of specific terms or words.”

Topics Lawsuits Carriers Profit Loss Claims Louisiana Hurricane Homeowners

Was this article valuable?

Thank you! Please tell us what we can do to improve this article.

Thank you! % of people found this article valuable. Please tell us what you liked about it.

Here are more articles you may enjoy.

Written By Robert Redfearn, Jr.

From this issue.

Excess, Surplus & Specialty Markets Directory Vol. II – The Industry’s Leading Coverage Placement Directory

Interested in carriers .

Get automatic alerts for this topic.

• Categories: Legal Beat
• Have a hot lead? Email us at [email protected]

Insurance Jobs

• Data Scientist – Insurance Modeling - Chicago, IL
• Circle Engineer – Dir Software Engineering - Hartford, CT
• Outside Property Claim Adjuster- Ann Arbor, MI - Troy, MI
• Healthcare Financial/Actuarial Senior Associate - Chicago, IL
• Workers Compensation Claim Representative – Investigative Claim Unit - Albuquerque, NM

• A Look at the Liquor Liability Landscape
• How to Sell Yacht Insurance Amidst a Rising Tide
• Squeezed from All Sides: Restaurants Pressured by Labor, Food, Insurance Costs
• Extreme Weather, Cyber Risks Top Concerns When Insuring Farms
• 3 Areas for Agents to Focus Growth Efforts in 2024 As the Hard Market Continues

• Insurers Get Green Light to Pay Less Than Billed Charges in Florida PIP Cases
• US Great Plains Brace for Possible Tornados: Weather Watch
• 30% of Business Leaders Say Global Political Risk Is Their Biggest Threat
• Judge Won't Dismiss Lawsuits Against Travis Scott Over Deadly Astroworld Concert
• Buffett's Property Brokerage Reaches Settlement in Realtor Case

• May 2 Rules of Engagement in Selling
• May 9 Cannabis and the Homeowners' Policy
• May 16 Business Income Limits and Coinsurance
• May 23 Broke as a Joke in 2024: Commercial Property Edition

• Practical Law

Assignment of insurance policies and claims

Practical law uk practice note w-031-6021  (approx. 19 pages).

• Construction and engineering
• Construction insurance
• Credit, terrorism and political risks
• Cyber insurance
• Directors and officers
• Disputes, investigations and enforcement
• Insurance in commercial transactions
• Insurance intermediaries
• Legal expenses
• Making and dealing with claims
• Reinsurance
• Security, risk management and business continuity

You are using an outdated browser. Please upgrade your browser to improve your experience.

Insurance Policy Consent to Assignment Clauses

Many policyholders forget that their insurance policy is a contract and is subject, with exceptions, to the usual laws of contract. An issue that frequently arises is whether the named insured is able to assign insurance proceeds under the policy to another. The answer to that question is dependent on the type of coverage sought.

Most insurance policies have a “consent to assignment clause” that typically provides: “Assignment of interest under this policy shall not bind the Company until its consent is endorsed hereon.” 1 This clause is designed to protect the insurer from having to extend coverage to an entity it never agreed to cover. In California, the enforceability of the clause depends on both the timing of the assignment and whether the claim is a first party loss – where the insured is seeking benefits for a sunk ship or a burned building, or a third party claim, which protects insured in certain instances when the insured might be liable to another.

With respect to first party claims, insurers have a vested interest in their personal relationships with the named insureds, and before a loss , a legally recognized need to prevent non-consensual assignments to less responsible insureds. 2 After a first party loss , however, the insurer’s need to consent dissipates, because any assignment is only of money already due under the contract and any right of the insured as a result of the loss may be assigned with or without the consent of the insurer; thus the consent to assignment clause is deemed unenforceable. 3 With respect to third party claims, the California Supreme Court held in Henkel that the consent to assignment clause is enforceable and, as a result, a company that acquired a policyholder’s assets and liabilities could not receive the benefits of the policyholder’s liability coverage in the absence of an insurer-approved assignment regardless of when the assignment took place. 4

The enforceability of “consent-to-assignment” clauses is dependent on the law of each particular state. Always check with an attorney before making an assignment of policy benefits to another, regardless of the situation.

1    Henkel Corp. v. Hartford Accident & Indemnity Co. (2003) 29 Cal.4th 934 , 943. 2 Bergson v. Builders Ins. Co. (1869) 38 Cal. 541, 545. 3 Vierneisel v. Rhode Island Ins. Co. (1946) 77 Cal.App.2d 229 , 232 [house destroyed by fire before close of escrow; affirming assignment by sellers to buyers of right to recover proceeds under fire insurance policy]. 4 Henkel , supra , 29 Cal.4th at p. 944.

Related Posts

Statutes and Case Law Impact Insurance Policy Interpretation

Do Typical Insurance Appraisers Follow California Code of Civil Procedure 1282.2?

What Makes an Appraiser Disqualified in California? Attend the IAUA Appraisal Conference in Marina del Rey

We’re ready to serve you.

Our firm represents residential, commercial and government entities in seeking timely, fair and proper compensation. We also support adjusters and contractors and work to protect their fees. In addition, we proudly serve as a reputable firm for referring attorneys to entrust their clients with should they be approached with an insurance claim case. Don’t fight insurance companies on your own. Contact us today!

Expert Insights Delivered to You

Meet the Gen Zers struggling to stay in work or school — and the parents who are at a loss for how to help

• A rising number of young Americans are disconnected from work, school, and a sense of purpose.
• Disconnection rates have been increasing since the 1990s, affecting young people's futures.
• Poor mental health and a lack of a financial safety net contribute to rising disconnection.

Destiny's main goal right now is survival.

The 21-year-old grew up in foster care in Florida and left the foster-care system at 16. Retail jobs helped her save enough money for an apartment, and she eventually became a manager at Family Dollar. She enrolled in college and maintained straight A's — for a while.

But Destiny, who asked to go by only her first name for fear of personal and professional repercussions, began to suffer from overwork while having multiple jobs during the pandemic, and her mental health faltered.

"I feel for those who are in my shoes and don't have a connection or a home base," said Destiny, who now lives in a small apartment in Alabama with her boyfriend. "You think you're alone, but there are so many of us who are in this situation. We're hopeless, feel like a failure, and we want to get it together. We just need better resources and time."

Eventually, Destiny dropped out of college and quit her job. She's struggled to get medication for her OCD and find stable employment beyond part-time gig work. She knows she's not alone in feeling stuck when it comes to investing in education or finding the right job.

"When I was a general manager, when I would hire people, I was hiring people who had master's" degrees, Destiny said. "They just couldn't find a job that used that degree or jobs they just weren't qualified enough for with their experience. I think a degree now is just pretty much a baseline education for most people with jobs."

A growing group of America's young people are not in school, not working, or not looking for work. They're called " disconnected youth " or " opportunity youth ," and their ranks have been growing for nearly three decades. Experts say it's not just work and school; this group is often also disconnected from a sense of purpose .

It's creating a tale of two Gen Zs: those who have followed traditional milestones and others who are increasingly getting left behind. These aren't all young people taking gap years — the disconnected youth Business Insider spoke with want education and good jobs but are partly victims of economic circumstances outside their control. And that might cost them.

'A long shadow across the whole life course'

Data from the Federal Reserve Bank of Dallas indicates the share of disconnected 18- to 24-year-olds has been on the rise since the 1990s. While it fell a bit in the 2010s, it spiked in the 2020s. In 2022, 13.2% of people in that age group were considered disconnected.

Measure of America, which looks at 16- to 24-year-olds who aren't in school and aren't working, found that nearly 4.7 million young people were disconnected in 2021.

Kristen Lewis, the director and cofounder of Measure of America, part of the Social Science Research Council, described ages 16 to 24 as consequential.

"Being disconnected from 16 to 24 can really cast a long shadow across the whole life course," Lewis said. It can even hurt someone's future earnings and likelihood of owning a house.

Just look at the wage progression as young people pick up degrees.

Using 2022 American Community Survey microdata from the University of Minnesota's IPUMS program , Business Insider found that 18- to 24-year-old Americans who were working earned a median income of $19,200.

The National Center for Education Statistics found that among 25- to 34-year-olds working full time in 2021, those who hadn't completed high school earned a median of $32,500, while those who had completed high school had a median income of $39,700. For those with a bachelor's degree, that jumped to $61,600.

"When kids become disconnected from school and work, there's just a downward spiral that is too often going to result," Sen. Tim Kaine, who's introduced legislation to help at-risk youths find jobs and receive job training, told BI. "Some people can figure their way out of that spiral, but many cannot."

Joseph, 21, is in that life stage. He said that while he doesn't want to be disconnected, mental-health challenges and a lack of a financial safety net or health insurance had left him in a lurch.

He said he grew up "very poor" in a trailer park in Indiana with his parents and three siblings. He excelled in high school and got a full scholarship to a four-year college. But after a year of remote learning, he struggled to keep up with schoolwork and often missed classes; he dropped out as he worked on improving his mental health. He said he regretted not being able to find a way to stay enrolled.

"I lost my scholarship, and I want to go back to college now and have a much better relationship with the concept and know myself and my needs better," he said. "But I can no longer afford it without the scholarship."

Joseph has been unemployed since October after struggling to hold down jobs at a warehouse, a summer camp, and a Walmart.

Despite having trouble finding a doctor to help him receive work accommodations for his disability, he's applied to various jobs, including substitute teaching and working in a kitchen, but he hasn't heard back from any. He's starting an online needlepoint-patch business to bring in extra income as he looks for his next job. He said he felt alone.

"I'd like to live in my own place, learn to drive so that I'm not dependent on my parents for transportation, and have a job that doesn't cause me more pain than I'm already in," he said.

Related stories

This has contributed to feelings of severe anxiety and distress; he said he'd contemplated suicide. He's hoping to finally get evaluated for ADHD and autism spectrum disorder after months of having no health insurance.

Ashley Palmer, an assistant professor of social work at Texas Christian University who has written papers on this cohort, said disconnected youth fall along a spectrum of connectedness to work and school.

"I don't think that simply being in school or working means that you're doing OK or that you're going to have improved well-being," Palmer said.

She said that while there's a lack of research in predicting the long-term social and psychological effects of disconnectedness, she suspects a lack of purpose can erode mental and physical health and relationships with friends and community.

"When you lack that purpose, it is difficult for you to think about how or in what ways you want to contribute or can contribute to society," Palmer said. "Our society is a relational one where we depend on people to be able to contribute in various ways."

Lewis, the researcher, said that "youth disconnection is not a spontaneously occurring phenomenon." Areas with high poverty rates and fewer community resources tend to have higher disconnection rates. Palmer added that those with limited access to transportation, people with disabilities, and young parents were also more susceptible.

In more affluent areas, Lewis said, "people are experiencing good health, access to knowledge, a decent standard of living — disconnection is rare in those communities."

"If you think about middle-class kids, they don't get just a chance or one second chance, they get a million chances," Lewis said. "They're in institutions where they can try and they can fail and they're protected to some degree from the consequences, and they can mess up and people can help them. Disconnected young people don't have that luxury."

Parents of disconnected youth are at a 'total loss'

Sarah Nunley, a Gen X parent of two disconnected youths in Silicon Valley, said kids in her area are often pressured to focus on academics and attend college.

But Nunley said she noticed a "dramatic shift" after the remote-school era of the pandemic, as her own kids dropped out of college.

"The top priority became this YOLO environment, or mentality that you only live once, where it was more important to spend time with friends and go on adventures, and education became secondary to that," Nunley said.

Veronica, a 43-year-old parent in Texas, recently watched one of her kids become disconnected. She thinks he became burned out after working relentlessly in retail during the pandemic and still not getting promoted.

"He was going full throttle," Veronica said. "I mean, my husband and I would make comments when we saw him coming downstairs in his work uniform, be like, 'You're going to work again?'"

Nunley said she was at a "total loss" about what she and her fellow parents could do to improve things. But she has hope that disconnected youths will come around.

"Everybody cares. There's not a single person that doesn't care about what's going on or doesn't have an opinion about what's going on," Nunley said. "So from that perspective, I think that there is a lot of hope that they will eventually figure it out. But I don't have any ideas of how they will figure it out."

DC Lucchesi, a Gen X dad of three, said that while parents want to give their kids the tools to do better, so much has changed about the path to success since parents were that age.

"Generationally speaking, the parents of this 'disaffected youth,' they're all my age," he said. "What we grew up learning or hearing or being told was you get a damn college degree and that's going to be your springboard to success. And somewhere along that space, the success of that safety net disappeared."

Instead, Lucchesi said, parents need to learn to be OK with telling their kids that they don't have to pursue an Ivy League degree or attend an elite school.

"It's OK to be doing something else that brings you joy and puts a check in the bank for you," he said.

But the pressure to help isn't only on parents. Palmer, the social-work professor, argued that policymakers interested in fixing the problem could implement programs like guaranteed income for disconnected youth, expanded social safety net initiatives like Medicaid, and universal preschool and childcare.

"The things that worry me are that we are not adequately addressing a growing mental-health crisis, and we are missing people with our social safety net — the lack of holistic supports for young people, things like not just making sure that they're enrolled or trying to get them placed in a job, but are there livable wages even with a college degree?" Palmer said.

Destiny aspires to attend law school, though her immediate goal is to find a stable job that comfortably pays her bills. She hasn't even begun to think about retirement or a mortgage. She's considering buying an RV and traveling around to save money on an apartment.

"I think the mental-health crisis has always been a big deal but just swept under rugs," Destiny said. "The only reason there's a true surge in mental-health crises now is because the newer generations are more outspoken about it. Trauma cycles get bigger with every new generation you introduce. I think it has finally hit its breaking point."

Are you or were you a "disconnected youth," or are you supporting one? Contact these reporters at [email protected] or [email protected].

Watch: Nearly 50,000 tech workers have been laid off — but there's a hack to avoid layoffs

• Main content