absolute assignment insurance

What is Absolute vs Collateral Assignment of Life Insurance?

by Life Credit Company | Mar 15, 2018 | Understanding Your Life Insurance Policy | 2 comments

When you purchase life insurance, you typically do so to prepare for after your death. However, an insurance policy is an owned entity and, as such, can be sold or used as collateral for a loan in order to provide cash value to someone in need.

Just as there are many questions when considering whether to get term insurance or whole life insurance , there are also a lot of factors to consider if you choose to use your policy to access the cash you’ve invested in it. It’s important to understand terms like absolute assignment and collateral assignment, as well as weigh the differences, in order to satisfy your particular financial needs.

What is absolute assignment of life insurance?

Absolute assignment in insurance involves signing over your entire policy to another person or entity. The person who is selling or gifting the policy is known as the assignor, and the individual or individuals who receive it are the assignee. The assignee takes full ownership of the policy, being held liable for any premiums and also having the authority to change or designate new beneficiaries.

What is a collateral assignment of life insurance?

Collateral assignment of life insurance essentially works like a standard loan. The insurance policy is “collateral” for a loan, and the person or organization that pays out that loan is the temporary beneficiary of the policy’s death benefit until the loan is repaid. The entity taking over the policy does so on a conditional basis and, therefore, doesn’t have the authority to make changes to it, re-sell it or take any of its cash value. Instead, the assignee can only draw on the death benefit if the policyholder defaults.

This type of approach is used by Life Credit, through the Living Benefit Loan program, which provides up to half of the value of a death benefit for a policy worth at least $75,000. This loan enables cancer patients and seniors to access immediate and unrestricted assistance to help reduce financial burden.

Compare Life Insurance Policy Assignments

If you’re facing a financial challenge and asking yourself, “ Can my life insurance policy’s cash value help me? ” then one of the most important things you can do is look at the big picture. An absolute assignment type of approach may allow you to generate a lot of quick cash, however, down the line, you or your family will not have any protection and cushion from a life insurance policy. This may be a policy that you have paid into for decades, so losing that value is a significant consideration.

Collateral assignment, on the other hand, enables policy holders to regain control of their own policy once a medical or other crisis has resolved. It is one of the 3 common ways to borrow from your life insurance policy and access the cash value. With a collateral assignment you are able to eventually benefit again from the long-term advantages of a life insurance policy. Most people are used to paying car loans, student loans and mortgages, so treating this agreement similarly and making the requisite payments can help people to not only address their immediate financial concerns but also ensure long-term success.

Contact a Life Credit representative to find out if you qualify for a life insurance loan .

Life Credit Company

We are a licensed consumer lender that is dedicated to providing financial assistance for patients who are facing serious illness. With a Living Benefit Loan, from Life Credit Company, you can receive up to 50% of your life insurance policy’s death benefit today. Whether you need to catch up on medical bills, consolidate debt or take your family on a dream vacation, this is your money to spend without restrictions. If you have at least $75,000 of life insurance and have been diagnosed with cancer or other serious medical condition, you may qualify for a loan. Contact us today to speak with a professional counselor who is standing by to assist you.

Where can I get a collateral loan from? what company offers this type of loan?

Please call us at 844-556-1269 for more information.

Submit a Comment Cancel reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed .

Absolute Assignment of a Life Insurance Policy

Absolute Assignment means complete Transfer of Rights. The person who transfers the rights is called the Assignor and the person to whom the rights are being transferred is called the Assignee.

The process of transferring rights of a Life Insurance Policy is called Assignment. There are 2 types of Assignment.

Absolute Assignment
Conditional Assignment

Hence Absolute Assignment means completely transferring whole and sole rights of the policy from the Assignor to the Assignee without any further terms and conditions applicable.

The process of assignment is complete only when the original Policy Document has been endorsed or a fresh Policy Document has been issued in favour of the Assignee.

Let’s take an example:

Rahul owns a Life Insurance policy of value Rs 5 lakhs. He would like to gift it to his best friend Ajay.

Thus, in that case, he would like to perform Absolute Assignment of the policy in Ajay’s name such that the death or maturity proceeds are directly paid to him. Rahul’s family members or nominee does not have any right on the policy money.

After the assignment is executed, 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 without any further clauses attached to it is called Absolute Assignment.

Example in real life of Absolute Assignment happens in case of an Insurance Policy being taken by the employer as a perquisite for the employee. Once the policy is purchased, it is transferred to the employee’s name under Absolute Assignment clause. Hence the employee becomes the owner of the policy, but the employer pays for it till the end. Thus, instead of paying the employee cash, they purchase an insurance policy in their name and add it to their Annual Income Package.

Deepak Yohannan is the Founder & CEO of MyInsuranceClub. He enjoys writing on Personal Finance and focusses on explaining the basic concepts of insurance in simple language.

800-556-9393

800-324-6370

Home » Articles Library » 2 Ways to Transfer Ownership of a Life Insurance Policy

2 Ways to Transfer Ownership of a Life Insurance Policy

Things to Know about Borrowing Against Your Life Insurance Policy

As property, policyowners can transfer their life insurance contracts to other persons or entities. A policyowner can transfer either all or only some of the “bundle of rights” that comprises a life insurance policy to almost any person or entity.

The two basic ways of making a lifetime transfer of a policy are: (1) the absolute assignment; and (2) the collateral assignment. An absolute assignment, as its name implies, transfers all the policyowner’s rights irrevocably. A collateral assignment, again as its name implies, assigns so much of the death benefit as necessary for as long as necessary to secure a lender’s rights. But no more of the proceeds will go to the lender than the amount of debt owed.

Requirements

The assignment does not have to be of any particular form (absent specific provisions in state law or the contract to the contrary). Because life insurance is treated as personal property, policyowner may transfer ownership rights, not only by many different types of documents, but also by many different actions. For example, if a person sells a business and the business owns a life insurance policy, the sale of all the assets of the business carries with it the personal property the business owned – including the life insurance.

Likewise, a property settlement in connection with a divorce may have the effect of transferring the ownership of life insurance on the life of one or the other (or both) spouse(s) even though no one ever uses the word “assignment” with regard to these transfers. But this type of transfer (where a clause in the divorce decree disposes of life insurance) is both very dangerous and very awkward. If a policyowner names his new spouse as beneficiary of the insurance proceeds and the insurer has no notice or knowledge of the divorce decree’s change, both spouses are likely to claim the proceeds. Furthermore, if the decree requires the policyowner spouse to maintain the policy for the benefit of his or her ex-spouse, the policyowner cannot obtain a policy loan-even to keep the policy in force through a premium loan.

Before either the absolute or collateral type of assignment or any other instance of a policy ownership transfer is valid, the policyowner must notify the insurer (and, where required by the terms of the contract, the insurer must consent to the assignment). Once notified in writing at the insurer’s home office, the insurer must honor the policyowner’s transfer—unless the terms of the contract itself forbid assignments. So if the insurer then disregards (by intention or neglect) the assignee’s rights and makes payment to someone else, the courts may force the insurer to make a second payment to the assignee. If the policyowner gives no notice to the insurer, it will be protected in a transaction initiated by a former owner. For instance, if the former owner applies for a policy loan and he has not given the insurer proper notice that he had assigned the policy, the insurer is protected in making that loan.

The insurer does not, however, have to verify the bona fides of the transaction between the policyowner and the transferee nor the validity of the transaction. In other words, the insurer is not accountable for the mental or legal capacity of the policyowner to make the assignment (unless it had knowledge that the policyowner was not legally competent to make it or there were irregularities in the assignment form).

Absolute Assignments

Policyowners use an absolute assignment in life insurance planning when the policyowner wants to sell or give away all of his or her rights under the contract. The goal might be to obtain valuable consideration, to save estate taxes, avoid creditors, or purely for love and affection and to assure the transferee of financial security. There are many common examples of sales and gifts:

A client might sell a policy on his life to his business.
A business might sell a policy on an employee’s life to the employee or to the employee’s spouse or child or trust (or to a pension plan).
A shareholder might sell a policy on his life to a new business associate.
A client might give a policy on her life to her spouse.
A client might give a policy on his life to his children or to a family trust.

Tax Implications

Both sales and gift transactions have important and sometimes unexpectedly expensive tax implications. Planners should thoroughly research before allowing any sale of a life insurance policy. Also, understand what should be considered before allowing a client to make a gift of a policy. A valid gift requires that the donor have contractual capacity and intent to make a voluntary gratuitous transfer and the gift must be delivered to and accepted by the donee (assignee).

Nontax Implications

Planners must be aware of the nontax implications of an absolute assignment in order to avoid them and/or alert the client to their potential effect. Some of these are:

Although an absolute assignment itself may not per se change the interest of a revocable beneficiary, as a practical matter the new owner can immediately change the beneficiary and often makes that change almost simultaneously with the assignment. Some absolute assignment forms state that the new owner is automatically the primary policy beneficiary until the new owner makes a change to the beneficiary designation.

If the policyowner made an irrevocable beneficiary designation before making an absolute assignment of the policy, in most states the assignment will not defeat that designation (without the written consent of the beneficiary) and the transferee should be apprised of this fact.

Absolute assignments may put the policy and its proceeds beyond the claims of the policyowner’s creditors, but planners should inform policyowner that—like diamonds—an absolute assignment is forever. There is a loss of both control and flexibility from the transferor’s viewpoint.

Leave a Comment Cancel reply

Save my name, email, and website in this browser for the next time I comment.

Copyright ©1984-2024 Life Quotes, Inc., and/or Life Quotes Partners, LLC, 850 North Cass Avenue, Suite 102, Westmont, Illinois, 60559. Life Quotes, Inc. and certain of its personnel are licensed as insurance agents, brokers or producers in all states. CA agent #0A13858, LA agent #200696 , MA agent #1746830 . CA under agency #0827712 dba Quotes for Life Insurance Agency, LA agency #205078 dba Life Quotes Inc, UT agency #90093 . All rights reserved. Telephone (630) 515-0170. Founded 1984.

Life insurance policies described, quoted, shown and illustrated throughout this website are not available in all states and may include those issued by: Life insurance policies described, quoted, shown and illustrated throughout this website are not available in all states and may include those issued by: American Family Life Insurance Company, Madison, WI; American General Life Insurance Company, Houston, TX and The United States Life Insurance Company in the City of New York, NY, both AIG companies; American National Insurance Company, Galveston, TX; American National Insurance Company of New York, Glenmont, NY; Assurity Life Insurance Company, Omaha, NE and Assurity Life Insurance Company of New York, Albany, NY; Banner Life Insurance Company, Frederick, MD, and William Penn Life Insurance Company, Garden City, NY, both Legal & General America companies; Boston Mutual Life Insurance Company of Boston, MA; Columbian Life Insurance Company, Chicago, IL and Columbian Mutual Life Insurance Company, Binghamton, NY, both members of Columbian Financial Group of Binghamton, NY; Fidelity Life Association, A Legal Reserve Life Insurance Company, Oak Brook, IL; Globe Life Insurance Company of New York, Syracuse, NY; Gerber Life Insurance Company, White Plains, NY; Globe Life and Accidental Insurance Company, Omaha, NE, a holding company of Torchmark Corporation, McKinney, TX; Foresters Financial, Buffalo, NY; John Hancock Life Insurance Company (USA), Boston, MA; Lafayette Life Insurance Company, Cincinnati, OH; Lincoln Life & Annuity Insurance Company of New York, Syracuse, NY and The Lincoln National Life Insurance Company, Fort Wayne, IN, both insurance company affiliates of Lincoln National Corporation, whose marketing name is Lincoln Financial Group; Minnesota Life Insurance Company of St. Paul, MN and Securian Life Insurance Company of St. Paul MN, both part of the Securian Life Insurance Company of St. Paul MN; Mutual of Omaha Insurance Company, Omaha, NE, United of Omaha Life Insurance Company, Omaha, NE, and Companion Life Insurance Company, Hauppauge, NY all Mutual of Omaha affiliate companies; North American Company for Life & Health Insurance, West Des Moines, IA; Pacific Life Insurance Company, Omaha, NE; Penn Mutual Life Insurance Company, Horsham, PA; Principal Life Insurance Company, Des Moines, IA; Protective Life Insurance Company and Protective Life and Annuity Insurance Company, Birmingham, AL; Pruco Life Insurance Company, Newark, NJ and Pruco Life Insurance Company of New Jersey, Newark, NJ, member companies of Prudential Financial, Inc., Newark, NJ; Sagicor Life Insurance Company off Austin, TX a member of the Sagicor Financial Corporation of Austin, TX; The Savings Bank Mutual Life Insurance Company of Massachusetts, Woburn, MA and Centrian Life Insurance, Woburn, MA (SBLI and The No Nonsense Life Insurance Company are registered trademarks of The Savings Bank Mutual Life Insurance Company of Massachusetts, which is in no way affiliated with SBLI USA Mutual Life Insurance Company, Inc.); Transamerica Financial Life Insurance Company, Harrison, NY, and Transamerica Life Insurance Company, Cedar Rapids, IA, both AEGON companies; United American Insurance Company, McKinney, TX.

IMAGES

Prudential absolute assignment form: Fill out & sign online
Absolute Assignment of a Life Insurance Policy
Free Insurance Assignment Agreement
Absolute Assignment
What is Absolute Assignment?
Absolute Assignment Forms

VIDEO

Why Liability Coverage Is A MUST For Drivers!
Auto Insurance Assignment
COMMERCIAL LAW GROUP ASSIGNMENT

COMMENTS

Absolute vs Collateral Assignment of Life Insurance
Absolute assignment in insurance involves signing over your entire policy to another person or entity. The person who is selling or gifting the policy is known as the assignor, and the individual or individuals who receive it are the assignee. The assignee takes full ownership of the policy, being held liable for any premiums and also having ...
Absolute Assignment of a Life Insurance Policy
The process of transferring rights of a Life Insurance Policy is called Assignment. There are 2 types of Assignment. Absolute Assignment. Conditional Assignment. Absolute Assignment means complete Transfer of Rights. The person who transfers the rights is called the Assignor and the person to whom the rights are being transferred is called the ...
2 Ways to Transfer Ownership of a Life Insurance Policy
A policyowner can transfer either all or only some of the “bundle of rights” that comprises a life insurance policy to almost any person or entity. The two basic ways of making a lifetime transfer of a policy are: (1) the absolute assignment; and (2) the collateral assignment. An absolute assignment, as its name implies, transfers all the ...