What Is An Absolute Assignment Of Life Insurance

Helen Skeates
Helen Skeates
22 min read

What does it mean to assign a life insurance policy absolutely? By definition, an absolute assignment is the unconditional transfer of an insurance policy’s ownership. Instances where you need a large sum of money readily available are unfortunately common, for example. If you have insurance, that might help. Have you ever considered using your life insurance as loan collateral instead?

In such a case, a legally binding absolute assignment must be executed. This one is probably new to you, but it’s in the fine print of your policy. Absolute assignments are discussed along with their applications and operation in this article. So, let’s get down to business.

What Absolute Assignment Of Life Insurance Is

To understand what a life insurance absolute assignment is, you must first be familiar with the concept of an absolute assignment. Absolute assignment, which may or may not be defined in your insurance policy, means changing the owner of the policy. There are a variety of scenarios in which you might want to transfer ownership of an insurance policy. So, what exactly do you plan on doing with this?

Parties to an Absolute Assignment

An absolute assignment of an insurance policy involves multiple individuals. Knowing who does what in a negotiation is crucial. In this context, “party” refers to the insured, or the policyholder. If this were a life insurance policy, this would be the insured. The current owner of the rights provided by the policy is called the assignor. The recipient of the rights is called an “assignee.”

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Other Parties Involved

In an absolute assignment transaction, there are parties involved both immediately and indirectly. The first one will gain the most. If the policy pays out, the money will go to the primary beneficiary. If the primary beneficiary is no longer qualified to receive the insurance proceeds, the policy will usually designate a secondary beneficiary to do so. The right to select beneficiaries is a key asset that the assignee hopes to secure.

Why Assign Your Rights?

The owner of an insurance policy may wish to transfer ownership for any number of reasons. If a company is sold, its policies may be transferred to the new owner. When a person is terminally ill and in need of money for medical expenses, life insurance policies may be assigned. The costs of the mishap could be distributed amongst multiple accident insurance policies.

Why Absolute?

The term “absolute” indicates that once the rights are assigned, there is no turning back. In order to collect on a life insurance policy that has been assigned, the assignee may have to make a number of insurance payments. If the policy’s original owner had the option to revoke the transfer at a later date, he would never agree to it. As a result, the assignment of the policy is final and irrevocable.

Requirements For Assignment Of Life Insurance As Collateral

Assigning a life insurance policy as collateral for a loan typically necessitates two things:

  1. The assignment of the policy is subject to the approval of the life insurance company.
  2. The life insurance policy must be accepted by the lender as collateral.

Absolute assignment uses

Those who do not have insurance are at a significant disadvantage compared to those who do. If your beneficiary is eligible for a reimbursement after your death, it could prevent a financial hardship for them. What I recommend most strongly is that you learn how to make the most of your insurance policy. The purpose and nature of an absolute assignment of life insurance should be familiar to you.

Use #1. Collateral for a bank loan

Life insurance can be used as collateral for a loan at a financial institution. Until the loan is repaid in full, some banks may insist that you sign an absolute assignment to guarantee repayment. Your life insurance payout will go to the bank until you’ve paid off your debt.

If you pass away while you still owe money on your loan, the bank will deduct the amount still owed on the loan before distributing the rest to your beneficiary.

Use #2. Charity gift

Those seniors who have no close relatives to inherit the money find this option appealing. It’s been trending upward in recent years. Buying life insurance with the intention of leaving a payout to charity is common practice. However, there will be delays and likely deductions from processing fees before the insurance company reimburses the estate. In this case, the estate may be able to claim the insurance proceeds by filing an absolute assignment.

How the transfer works

If the new owner is not the beneficiary and has no say over the investments, you can keep your insurance in place even after an absolute assignment transfers full ownership to them. The policy’s premiums must still be paid even if the owner has moved on with the other party. If you don’t, you might get in trouble with the law.

Procedure #1. Legal considerations

You should check with your insurer about the policy’s transferability before making any final decisions. If so, they’ll hand you a blank assignment form.

Make sure you have everything you need before sending it in to your insurance company. A completed form will be sent to the insurance company so they can handle your claim. The name of the assignee must appear on the policy document or assignment form, which the insured must endorse.

Insurance providers typically ask for proof of employment, a photo ID with a current address, and possibly even a PAN card. Absolute assignment procedures may vary from one insurance provider to the next.

Procedure #2. Acceptance and rejection

After the assignor pays the required fees and the insurance company receives the assignment paperwork, the assignor will be notified. However, if the insurer determines that the assignor is acting in a way that is detrimental to the policyholder, it may reject the assignment. Read this article to find out what an absolute assignment of a life insurance policy entails.

Key Details

  • Include people besides the lender on the list of beneficiaries (like a spouse). It’s not a good idea to make your lender your primary beneficiary.
  • Should you pass away before the loan is paid in full, your lender (in their capacity as collateral assignee) will receive ONLY the amount of life insurance proceeds that covers the balance (principal plus interest).
  • If you have a permanent life insurance policy, the beneficiaries you name will receive the cash value when you die.

Please Read!

Your life insurance proceeds must be distributed first to any collateral assignments. Your heirs come in at a distant second.

To rephrase, in the event of your death, your policy’s proceeds will be distributed to your lender first.

Your heirs will receive the death benefit after the loan has been paid off.

Sample Situation

Let’s pretend Marvin has a million dollars in life insurance and wants to donate it to the orphanage where he spent his formative years. Marvin must sign an absolute assignment of the policy for this to take place. If Marvin were to pass away, his estate would be donated to that institution for abandoned children. Since Marvin signed an absolute assignment, his family has no claim to the funds.

Upon submission of the assignment form and absolute assignment to the insurance company, the orphanage will become the policy owner. The absolute assignment will governs if the orphanage unilaterally decides to transfer ownership to another party.

Types Of Life Insurance Used As Collateral

As long as the lender is willing to accept it, almost any type of life insurance can be used as collateral.

It’s important to find the right life insurance policy for you and your family.

Take a look at these different kinds:

No Exam

Borrowing money when you’re in a pinch is not uncommon.

The application process for no-exam life insurance can be shortened by several weeks, making it a good choice as collateral for a loan.

Please explain. Obtaining life insurance coverage without having to undergo a physical.

Term, universal, and whole life insurance policies are all available with no medical exams required.

Is No Exam right for me?

Several situations warrant considering no-medical-exam life insurance:

  • Life insurance is a must immediately. Within minutes, some insurance companies can issue a “no exam” policy.
  • You’ve got a few issues with your health. Avoiding the paramedical exam could help you save money even if your health isn’t perfect.
  • You haven’t visited a medical professional for quite some time. It’s possible that abnormalities in your blood work, such as high cholesterol or high blood sugar, will catch you by surprise.
  • You cringe at the thought of doctors and nurses. You can safely ignore the dreaded needle if you so choose.


Term life insurance is widely used due to the low premiums and high coverage amounts available.

Please explain. Term life insurance covers a predetermined time frame. Such as ten or twenty years.

When you need financial security the most, term life insurance is there to help. For instance, you may require security while juggling the responsibilities of a career and a family.

Both the premium and the death benefit are typically fixed (unchanged) for the policyholder’s selected time period.

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Is Term right for me?

In the event that…

  • The face value of your life insurance policy needs to be increased.
  • Your requirements for life insurance cover a set period of time.
  • Money is tight right now.


Permanent life insurance, or whole life insurance, covers you for the rest of your days.

Please explain. Cash value life insurance provides protection for the insured’s entire life.

Assuming you keep up with your premium payments, your whole life insurance policy will last forever.

Your premiums are likely to remain constant, and some may even be eliminated as you get older.

Is Whole right for me?

In some cases, it makes sense to purchase a whole life policy:

  • You hope that your policy will have a savings feature.
  • You’re curious about the policy loan options.
  • You should look for life insurance that does not run out.
  • You have decided to use life insurance to make a financial gift.


One variety of permanent life insurance is known as universal life insurance (UL).

Please explain. Term life insurance with investment options and premium payment flexibility.

The flexibility of a universal life insurance policy is well-known.

Is Universal right for me?

Unique features of universal life insurance are:

  • Your policy’s investment portion will fluctuate based on market conditions.
  • Your monthly premium amount is negotiable. Your life insurance requirements will vary from policy to policy.
  • The amount of the death benefit is usually flexible.
  • The coverage you have purchased is lifetime and cannot be cancelled.

Guaranteed Universal

If you want a cheap life insurance policy that will probably last your whole life, look no further than guaranteed universal life insurance (GUL).

Please explain. GUL combines features of both term and permanent policies.

Guaranteed universal life insurance is common because it allows policyholders to lock in affordable coverage for a long period of time, usually beyond the age of 100.

Is Guaranteed Universal right for me?

Guaranteed Universal Life Insurance, also known as No Lapse, is a popular choice due to its many valuable features.

  • The age limit, rather than the term length, determines the duration of a policy. Your GUL policy, for instance, may cover you until you’re 121 years old.
  • You can expect a higher premium for your policy than you would pay for term life insurance but still less than whole life.
  • In many cases, there is no monetary value at all.
  • Your premiums and death benefit will remain the same.

Remember This!

Collateral assignment can be made against the cash value of a permanent life insurance policy (Whole Life, Universal Life, and occasionally Guaranteed Universal Life). That way, your heirs will get the full death benefit.

Remember that a collateral assignment typically limits your ability to withdraw the cash value of your policy.


To get the most out of your collateral assignment and minimize any problems that could arise, you should follow these steps.

Read this list of musts and must-nots carefully:


  • Obtain Collateral Assignment-Approved Life Insurance
  • Identify both the primary and secondary recipients.
  • Check with your lender to make sure the policy meets their requirements.
  • Get a release of assignment from the lender after the loan is paid off.
  • Send assignment release to insurer of life.


  • Change the primary beneficiary to the lender.
  • Get a policy whose face value is lower than the sum for which you are taking out a loan.
  • Allow your insurance to lapse
  • Get rid of the old insurance
  • Get off track with your payments


What is the turnaround time?

Possibly; that is up for debate. Your collateral assignment will be secured in a timeframe that is specific to the carrier, the life insurance policy, and your individual circumstances.

If you’re in a hurry to get covered, opt for a no medical exam life insurance policy instead of a paramedical exam (fully underwritten policy).

The process of assigning collateral could take a few days or a few weeks.

Who should be my beneficiary?

Don’t put a financial institution like a bank or a credit card company first on the list of beneficiaries.

Instead, you should name as beneficiaries the people who mean the most to you and who rely on you financially.

In this way, the lender (collateral assignee) will only collect the loan balance from the death benefit. Your beneficiaries will receive the remaining funds from the policy.

Do I need good credit?

The opposite is true.

A perfect credit score is not necessarily required when purchasing life insurance. In fact, you’ll need a higher credit score to be approved for a loan.

However, if you are currently filing for bankruptcy or have recently filed for bankruptcy, your application for life insurance may be denied. If you have questions about bankruptcy and life insurance, it is best to consult an impartial life insurance agent.

What if I stop making my premium payments on my life insurance policy?

To sum up: don’t.

If you miss a premium payment, your lender will be notified. If you are having trouble making your premium payments due to a financial hardship, you should speak with your lender as soon as possible to discuss your options.

If you fail to pay premiums on your life insurance policy as agreed, your lender may terminate your loan.

In order to keep your policy active, your lender may pay the premiums on your behalf. The cost of having payments made on your loan will (typically) be added to the total cost of the loan.

Your lender may be able to deduct premium payments from the cash value of your whole life insurance policy if you use it as collateral.

Can I change my collateral assignment to a different life insurance policy?

Yes. Talk to a life insurance agent if you want to use collateral assignment on a policy other than a life insurance policy.

You can switch your collateral assignment if the other life insurance policy meets the requirements.

Keep in mind the two most important conditions for using a life insurance policy as collateral:

The life insurance company must first approve the collateral assignment.
The lender must be satisfied with the amount and duration of the policy before approving the collateral assignment.

Do I have to be the insured?

No. It is not necessary that you be the policy’s named insured.

On the other hand, you must be the policyholder. The life insurance policy can be designated as collateral assignment by the policyholder, who also controls the policy.

In most cases, the policyholder is also the insured.

What is collateral assignment split dollar life insurance?

Collateral assignments are only done between employers and their most valuable employees. Individuals seeking a loan are not the target audience for split dollar plans.

To put it simply, a key employee can get a loan from their company under a split dollar structure so that they can pay their life insurance premiums. The loan is secured by the employee’s life insurance policy.

The end goal is to sweeten the deal for hardworking employees who are instrumental to an organization’s success.

Can I assign my policy to more than one lender?

Yes. If your policy is in good standing, it can be assigned as collateral to several different lenders.

Let’s say you’re trying to get a loan from both your bank and another financial institution. Both your bank loan and your private loan total $80,000. Each of your loans has a term length of 10 years, and one of them has a term length of 15 years.

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Let’s pretend for a moment that you have a $250,000 term life insurance policy. Your insurance policy’s face value and term length are sufficient to meet the collateral requirements of both loans.

Your life insurance policy can serve as collateral for the two loans provided both the insurance company and the lenders are in agreement.

Are policy loans available on life insurance that has a collateral assignment?

Possibly. Borrowing money requires the lender’s express written permission.

Keep in mind that whole life insurance can provide you with access to policy loans.

Your lender basically needs to be convinced that a policy loan won’t endanger the assigned collateral. You should talk to your lender about what choices you have.

My loan payoff is complete. What happens now?

As soon as the loan is paid off, get in touch with the lender.

A lender-issued assignment release form will be made available. By signing this form, they are giving up their claim on your life insurance.

You’ll send this to the company that provides your life insurance.

This will ensure that the proceeds from your policy are distributed promptly to your beneficiaries.


It’s crucial that you understand the specifics of your life insurance policy and what constitutes an absolute assignment of benefits. In case you ever decide to do something with your life insurance, you may need to refer back to these definitions. Be sure that the person or organization you give your life insurance to is trustworthy, whether you’re using the policy to secure a loan or making a charitable donation.

Nevertheless, insurance coverage isn’t just for yourself or your family. Your property is also eligible for insurance protection. How does water damage insurance work? That’s one of the things we’ll discuss here. Read this one if you want to find out more about the subject!

Helen Skeates

Helen Skeates

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