What is a collateral assignment for life insurance? BC Brokerage | Insurance for Fee-Only Planners
A collateral assignment of life insurance is a conditional assignment which makes a lender the primary beneficiary of a whole or partial death benefit to use as collateral for a loan.
The borrower must be the owner of the policy, but they don't necessarily have to be the insured. The policy must be in force throughout the duration of the loan to ensure repayment in the event of something unexpected happening.
There are many types of insurance that can be used for a collateral assignment. Term insurance is sufficient for many types of loans. However, some lenders may want to use a permanent policy to access the policy's cash value in the event that the borrower defaults on payments.