Which statement about collateral assignments is true?

• A. The policy owner retains ownership
• B. Ownership is transferred to the lender
• C. The policy is terminated
• D. The beneficiary becomes the lender

Answer: (A)

A collateral assignment is a way to pledge a life insurance policy as security for a loan without giving up ownership. The policy owner continues to own the policy and control premiums and policy changes. The lender merely holds a collateral interest in the death benefit—the lender doesn’t become the owner. If the insured dies, the death benefit first goes to repay the loan balance to the lender, and any remaining proceeds go to the policy’s beneficiary or estate as designated. Because of this, the statement that the policy owner retains ownership is the correct description. The other options imply transferring ownership, terminating the policy, or making the beneficiary the lender, none of which match how collateral assignments work.