Which provision allows a life insurance policy to be used as collateral for a bank loan?

The provision that allows a life insurance policy to be used as collateral for a bank loan is the collateral assignment. This provision enables the policyowner to assign a portion or all of the policy's death benefit to a lender as security for a loan. By doing so, the lender gains assurance that they will be repaid from the policy's value in the event of the borrower's death before the loan is settled.

Collateral assignment is specifically designed for this purpose, making it a practical option for individuals looking to secure loans while leveraging the value of their life insurance. This provision usually has a temporary nature; once the debt is repaid, the assignment terminates, and the policy benefits revert to the policyowner or the designated beneficiaries.

In contrast, other options like beneficiary assignment are focused on transferring ownership of the policy's death benefit to another party, which does not serve the purpose of securing a loan. The policy loan provision allows the policyowner to borrow against the policy's cash value but does not specifically relate to collateral for third-party loans. Lastly, the free-look provision gives the policyholder a specified period to review the policy after purchasing it, unrelated to loan collateralization.