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The owner of a Life policy may pledge the policy as collateral for a loan from a bank, who would then have a temporary lien against the policy. If the insured dies during the term of the loan, the insurer will pay off the bank. Any remaining proceeds are payable to the designated beneficiary.
A collateral assignment of life insurance directs your insurance provider to use your death benefit to pay off an existing loan if you die while in debt. After the lender is paid, any remaining funds go to your policys beneficiaries.
Collateral assignment of life insurance is a method of providing a lender with collateral when you apply for a loan. In this case, the collateral is your life insurance policys face value, which could be used to pay back the amount you owe in case you die while in debt.
Once your first life insurance premium is paid, you can proceed with completing a collateral assignment form via your insurer. On the form, youll need to provide your lenders contact information so they can be added as the death benefit collateral assignee until your loan is repaid.
If you have a $500,000 life insurance policy and die while still owing $50,000 on a business loan, the lender could claim $50,000 of your death benefit assuming, of course, that you listed that lender as a collateral assignee.
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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.
You can freely assign your life insurance policy unless some limitation is specified in your contract (your insurance company can furnish the required assignment forms). Through an assignment, you can transfer your rights to all or a portion of the policy proceeds to an assignee.
An Assignment of Life Insurance Policy as Collateral is an agreement between the owner of the life insurance policy (as assignor) and the lender (as assignee). It is also typically acknowledged by the insurance company.

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