Assignment

In the context of life insurance, "Assignment" refers to the legal transfer of the rights or benefits of an insurance policy from the original policyholder (assignor) to another party (assignee). This process allows the policyholder to transfer their interest in the policy, either partially or wholly, to another individual or entity. There are two main types of assignments:

1. ‍Absolute Assignment: This involves the complete transfer of all rights, benefits, and obligations under the policy from the assignor to the assignee. Once an absolute assignment is made, the assignee becomes the policy's owner and assumes full control over the policy, including the right to name beneficiaries and make decisions regarding the policy's terms. Absolute assignments are often used in estate planning or as collateral for a loan.‍
2. Collateral Assignment: This is a partial and temporary transfer of rights to the assignee. In a collateral assignment, the policyholder uses the policy as collateral for a loan. The assignee (usually a lender) has a limited interest in the policy, typically to the extent of the outstanding loan. If the policyholder dies or if certain conditions are met, the assignee can claim the amount due from the death benefit, with any remaining amount payable to the policy's beneficiaries. Once the loan is repaid, the rights under the policy revert to the policyholder.

The process of assignment requires the policyholder to notify the insurance company in writing, and the assignment must comply with the terms of the policy and relevant laws. Assignments can have significant implications for policy ownership, tax liabilities, and the distribution of death benefits, making it important for policyholders to consult with professional advisors or legal professionals before proceeding with an assignment.