What Is a Collateral Assignment of Life Insurance?

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

What is a Collateral Assignment of Life Insurance?

A collateral assignment of life insurance is a legal way to secure a loan. When someone takes out a loan, they can use their life insurance policy as collateral. This means if they don’t repay the loan, the lender can claim money from the life insurance policy.

How is a Collateral Assignment Used in a Life Insurance Contract?

In a life insurance contract, a collateral assignment is used to provide security to a lender. The policyholder assigns the life insurance policy to the lender, but they still own the policy and continue paying premiums. If the policyholder repays the loan, the assignment is removed. If not, the lender receives the death benefit or cash value, depending on the policy, to cover the unpaid loan.

What is Considered the Collateral on a Life Insurance Policy Loan?

The collateral on a life insurance policy loan is usually the death benefit or the cash value of the policy. The cash value is the amount the policyholder can withdraw or borrow against during their lifetime. In a collateral assignment, the lender’s rights are limited to the amount of the loan plus any interest.

Related Reading: Credit Life Insurance

Life Insurance Collateral Assignment

Who is Authorized to Assign a Life Insurance Policy as Collateral for a Loan?

Only the policy owner can assign a life insurance policy as collateral for a loan. This is typically the person who bought the policy and pays the premiums. They must complete and sign a collateral assignment agreement, which is then sent to the insurance company for approval.

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Collateral Assignment Details

Parties InvolvedPolicyholder, Lender, Insurance Company
CollateralDeath Benefit or Cash Value
Rights of LenderLimited to Loan Amount + Interest
Policy Owner’s ObligationContinue Paying Premiums
Removal of AssignmentUpon Full Repayment of Loan


Collateral assignments of life insurance provide a secure way for policyholders to obtain loans using their policies as collateral. Understanding the terms and conditions is crucial for both the borrower and the lender. This method ensures the lender is protected while allowing the policyholder to maintain their policy.

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Assignment Of Life Insurance Policy

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Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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