A provision that allows a policyowner to temporarily give up ownership rights to secure a loan is called a(n)

• A. Collateral assignment
• B. Policy loan provision
• C. Waiver of surrender
• D. Temporary assignment

Answer: (A)

A collateral assignment is a provision that lets a policyowner use the policy as security for a loan by giving the lender a claim on the policy’s death benefit up to the loan amount. The owner keeps the policy and can still exercise many ownership rights, but the lender’s interest sits ahead of the beneficiary for the amount of the loan. If the insured dies with the loan unpaid, the death benefit is first paid to satisfy the loan, and any remaining proceeds go to the beneficiary. Once the loan is repaid, the assignment is released and full rights revert to the policyowner. This is different from taking a policy loan against cash value, which doesn’t involve transferring rights to a lender, and from other riders that don’t establish a creditor’s security interest.