ANSWERS: 1
  • Most life insurance policies contain an assignment clause. This clause gives the policyholder financial leverage when obtaining a consumer loan.

    Definition

    A life insurance assignment is when you list a lender as a beneficiary on your life insurance policy for as long as a balance remains on the loan debt.

    Assignability

    A policy that contains an assignment clause is freely assignable, meaning that the policyholder is free to give a lender rights to policy payments.

    Purpose

    A life insurance assignment serves as collateral for a consumer loan. Because the lender knows it will receive part of the payout if you die, it will be more willing to approve a loan application.

    Payout

    If you die before the policy expires and before the loan is paid off, the assignee will receive the amount necessary to cover the loan balance. The remainder will be paid to your designated beneficiaries, such as your spouse or children.

    Validity

    Although life insurance policies are freely assignable, the life insurance company does not guarantee that the assignment is valid. If you cancel the policy, the company has no obligation to pay the assignee.

    Source:

    AllBusiness.com: Assignment Clause

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