Assignment (Insurance)
Assignment is the transfer of some or all policy rights from the policyholder to another party, commonly used for collateral assignments (securing loans) or absolute assignments (permanent transfer of ownership).
Exam Tip
Collateral = temporary, for loans. Absolute = permanent transfer. Assignment transfers ownership rights, not just beneficiary designation!
What is Assignment in Insurance?
Assignment is the legal transfer of policy rights from the policyholder to another party. The original policyholder (assignor) transfers rights to another party (assignee). This is commonly used when using a life insurance policy as collateral for a loan.
Types of Assignment
| Type | Description | Ownership |
|---|---|---|
| Absolute Assignment | Complete transfer of all rights | Full ownership to assignee |
| Collateral Assignment | Partial/temporary transfer | Limited rights to lender |
Collateral Assignment
| Feature | Description |
|---|---|
| Purpose | Secure a loan |
| Rights Transferred | Only enough to cover loan |
| Death Benefit | Lender paid first, remainder to beneficiary |
| Loan Repaid | Assignment automatically terminates |
| Policyholder Rights | Retains ownership after loan satisfied |
Absolute Assignment
| Feature | Description |
|---|---|
| Purpose | Permanent ownership transfer |
| Rights Transferred | All policy rights |
| Common Uses | Gift, sale, charitable donation |
| Reversibility | Generally irrevocable |
| Tax Implications | May trigger gift tax |
Assignment Process
| Step | Action |
|---|---|
| 1 | Complete assignment form |
| 2 | Submit to insurance company |
| 3 | Company records assignment |
| 4 | Assignee receives rights |
Assignment vs. Change of Beneficiary
| Feature | Assignment | Beneficiary Change |
|---|---|---|
| What Transfers | Ownership rights | Death benefit recipient |
| During Life | Assignee can access policy | Beneficiary has no rights |
| Policy Control | Assignee controls | Owner controls |
| Revocability | Usually irrevocable | Usually revocable |
Rights That Can Be Assigned
- Right to name beneficiary
- Right to receive dividends
- Right to surrender policy
- Right to borrow against cash value
- Right to receive death benefit (in part or full)
Limitations on Assignment
| Limitation | Description |
|---|---|
| Insurable Interest | Generally not required at assignment |
| Policy Terms | Some policies restrict assignment |
| State Laws | May require specific procedures |
| Company Approval | Some require consent |
Study This Term In
Related Terms
Beneficiary
InsuranceA beneficiary is a person or entity designated to receive the death benefit or proceeds from an insurance policy or retirement account.
Policy Loan
InsuranceA policy loan is a loan from an insurance company using the cash value of a permanent life insurance policy as collateral, which does not require credit approval and charges interest that accrues if unpaid.
Cash Value
InsuranceCash value is the savings component of a permanent life insurance policy that grows tax-deferred and can be accessed through loans or withdrawals during the policyholder's lifetime.