What is a collateral assignment in life insurance?

A collateral assignment in life insurance refers to a temporary transfer of rights or benefits of a policy as security for a loan. In this context, the policyholder can assign their life insurance policy to a lender temporarily, indicating that the lender will have rights to the policy's death benefit if the borrower defaults on the loan. This arrangement provides a level of security to the lender while allowing the borrower to retain ownership and control over the policy, as the assignment is only in effect until the loan is repaid.

This ability to use a life insurance policy as collateral can be an advantageous loan strategy, as it may help the borrower obtain better loan terms or qualify for a loan that they otherwise might not secure without additional backing. The specifics of the arrangement, including how the assignment affects premiums and policy management, would be defined in the terms of the collateral assignment agreement.