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What Is An Assignee On A Life Insurance Policy?

Published: October 14, 2023

Learn the role of an assignee on a life insurance policy and how it can impact your finances. Discover what it takes to become a finance-savvy assignee.

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Table of Contents

Introduction, definition of assignee, role of assignee in a life insurance policy, rights and responsibilities of an assignee, process of assigning a life insurance policy, benefits of assigning a life insurance policy, considerations before assigning a life insurance policy, potential challenges and risks for assignees.

Life insurance is a crucial financial tool that provides protection and financial security to individuals and their loved ones in case of unexpected events. While the primary purpose of life insurance is to provide a death benefit to beneficiaries, policy owners also have the flexibility to assign or transfer their policy rights to another person or entity. This is where an assignee comes into play.

An assignee on a life insurance policy refers to the individual or entity who is designated to receive the policy benefits or be the recipient of any policy changes. Assigning a life insurance policy can be a strategic move for policyholders who want to transfer ownership rights or allocate the proceeds to a specific person or organization.

In this article, we will delve deeper into the role of an assignee in a life insurance policy, their rights and responsibilities, as well as the process of assigning a policy. We will also explore the benefits and considerations involved in assigning a life insurance policy, along with potential challenges and risks that assignees may encounter.

Understanding the concept of assignees in life insurance policies is essential for policyholders who may be considering transferring their policy rights or for beneficiaries who need to comprehend the implications of an assigned policy. Without further ado, let’s dive into the details of assignees on a life insurance policy.

An assignee on a life insurance policy is an individual or entity that is designated to receive the policy benefits or take over the ownership rights and responsibilities. When a policyholder assigns their life insurance policy, they transfer their rights to the assignee, who then becomes the new owner of the policy.

The assignee can be a spouse, child, relative, friend, or even a business entity such as a trust or corporation. The assignee can be named at the time the policy is initially taken out, or the policyholder can choose to assign the policy at a later date. In some cases, a policyholder may assign their policy to a lender or creditor as collateral for a loan.

It is important to note that the assignee is distinct from the beneficiary. The beneficiary is the person or entity who receives the death benefit proceeds upon the death of the insured. While the assignee assumes ownership of the policy, they may or may not be the same person as the beneficiary.

Assigning a life insurance policy can be a way for policyholders to ensure that the intended recipient receives the policy benefits or to transfer the financial responsibility and management of the policy to someone else.

Now that we have established the definition of an assignee in a life insurance policy, let’s explore their role in more detail.

The assignee plays a significant role in a life insurance policy once they have been designated as the new owner. Their responsibilities and authority may vary depending on the terms of the policy and the specific agreement between the policyholder and the assignee. Here are some key roles an assignee may have:

• Policy Ownership: As the assignee, they become the legal owner of the life insurance policy. This means they have the rights to manage and make decisions regarding the policy, subject to any limitations or conditions outlined in the assignment agreement.
• Premium Payments: The assignee is generally responsible for paying the premiums to keep the policy in force. They may choose to use their own funds or utilize the policy’s cash value, if available, to cover the premiums.
• Beneficiary Designation: The assignee may have the authority to change the beneficiary designation if permitted by the policy terms. This gives them the ability to redirect the policy’s death benefit to another individual or entity.
• Policy Modifications: Depending on the specific agreement, the assignee may have the power to make changes to the policy, such as increasing or decreasing the coverage amount, adjusting the policy term, or adding additional riders.
• Access to Policy Information: As the new policy owner, the assignee has the right to access and review the policy information, including the policy terms, conditions, and any associated documents.
• Claims Processing: In the event of the insured’s death, the assignee is responsible for initiating the claims process and ensuring that the death benefit proceeds are disbursed to the designated beneficiary.

It’s important to note that the specific roles and authority of the assignee can vary based on the terms of the assignment agreement. It is essential for both the policyholder and the assignee to have a clear understanding of their respective roles and responsibilities to avoid any confusion or disputes in the future.

Now that we have examined the role of an assignee in a life insurance policy, let’s explore the rights and responsibilities they have in more detail.

When an individual or entity becomes the assignee of a life insurance policy, they acquire certain rights and responsibilities associated with the policy. These rights and responsibilities can vary depending on the terms of the assignment agreement and the specific provisions of the policy. Let’s take a closer look at the rights and responsibilities of an assignee:

Rights of an Assignee:

• Ownership Rights: As the assignee, they have the right to the policy benefits and any cash value that has accumulated. They can make decisions regarding the policy, such as changing the beneficiary, modifying coverage, or accessing policy information.
• Premium Payments: The assignee has the right to receive premium payments from the policyholder, which they can use to keep the policy in force. They may also have the right to access the policy’s cash value, if available.
• Policy Modifications: Depending on the terms of the assignment agreement, the assignee may have the right to make changes to the policy, such as adjusting the coverage amount, policy term, or adding additional riders.
• Access to Policy Information: The assignee has the right to access and review the policy information, including the terms, conditions, and any associated documents. This allows them to stay informed about the policy’s provisions and make informed decisions.
• Claims Processing: In the event of the insured’s death, the assignee has the right to initiate the claims process and receive the death benefit proceeds. They are responsible for disbursing the proceeds to the designated beneficiary, if applicable.

Responsibilities of an Assignee:

• Premium Payments: As the assignee, they are responsible for making premium payments to keep the policy in force. This ensures that the policy remains active and the coverage continues.
• Policy Management: The assignee has the responsibility to manage and maintain the policy. This includes reviewing the policy regularly, staying informed about any changes in the terms and conditions, and making decisions that align with the policyholder’s intentions.
• Beneficiary Designation: If authorized by the assignment agreement, the assignee may have the responsibility to change the beneficiary designation if necessary. This involves ensuring that the intended recipient of the death benefit is correctly designated.
• Communication: The assignee has the responsibility to maintain open communication with the policyholder, beneficiaries, and any other parties involved. This helps in addressing any questions, concerns, or changes that may arise regarding the policy.

It’s important for both the assignee and the policyholder to have a clear understanding of these rights and responsibilities to ensure a smooth and effective management of the policy. Now that we have explored the rights and responsibilities of an assignee, let’s move on to understand the process of assigning a life insurance policy.

The process of assigning a life insurance policy involves transferring the ownership rights and control of the policy from the policyholder to the assignee. While the specific steps may vary based on the insurance company and policy terms, the general process typically includes the following:

• Review Policy Terms: The policyholder should carefully review the terms and conditions of their life insurance policy to understand any limitations or restrictions on assigning the policy.
• Choose an Assignee: The policyholder selects an individual or entity to be the assignee. This can be a family member, friend, trust, or even a business entity. It is essential to consider the long-term goals and intentions when choosing an assignee.
• Obtain Consent: The policyholder must obtain the consent of the proposed assignee to ensure they are willing to assume the responsibilities and obligations associated with the policy.
• Prepare Assignment Agreement: The policyholder and the assignee should work together to prepare an assignment agreement. This is a legal document that outlines the terms of the assignment, including the assignee’s rights, responsibilities, and any potential compensation or considerations involved.
• Notify the Insurance Company: The policyholder must contact their insurance company to inform them of the intention to assign the policy. The insurance company may require specific forms to be filled out, along with a copy of the assignment agreement.
• Insurance Company Approval: The insurance company will review the assignment request and the assignment agreement to ensure they comply with their policies and regulations. Once approved, they will update their records to reflect the new assignee.
• Update Beneficiary Designation: If the assignee is different from the original beneficiary, the policyholder may need to update the beneficiary designation to ensure that the intended recipient receives the death benefit.

It is crucial for both the policyholder and the assignee to consult with legal and financial professionals to ensure that the assignment process is conducted properly, adhering to any legal requirements and optimizing the financial outcomes for all parties involved.

Now that we have discussed the process of assigning a life insurance policy, let’s move on to explore the benefits of assigning a life insurance policy.

Assigning a life insurance policy can offer several benefits for both the policyholder and the assignee. Here are some key advantages of assigning a life insurance policy:

• Control and Flexibility: Assigning a life insurance policy allows the policyholder to have control over who will manage and benefit from the policy. It provides flexibility to designate a specific person or entity to take over the ownership rights and responsibilities.
• Estate Planning: Assigning a life insurance policy can be an effective estate planning strategy. It allows the policyholder to transfer assets outside of their estate, which may help in minimizing estate taxes and ensuring a smooth transfer of wealth to the intended recipients.
• Creditor Protection: By assigning a life insurance policy to a trust or business entity, the policy cash value and death benefit may be protected from potential creditors. This provides an added layer of financial security for the assignee and the intended beneficiaries.
• Financial Assistance: Assigning a life insurance policy can be beneficial in scenarios where the assignee needs financial assistance. For example, if the assignee is facing financial hardship or requires funds for a specific purpose, they may be able to access the policy’s cash value or even borrow against the policy.
• Charitable Giving: Assigning a life insurance policy to a charitable organization can be a meaningful way to support a favorite cause. It allows the policyholder to make a significant charitable contribution, and the assignee, in this case, would be responsible for managing the policy and ensuring that the proceeds benefit the designated charity.

It’s important to note that the benefits of assigning a life insurance policy can vary depending on the specific circumstances and goals of the policyholder. Therefore, it is advisable to consult with financial advisors, estate planning professionals, and insurance experts to assess the suitability of assigning a policy and to maximize the potential benefits.

Now that we have explored the benefits of assigning a life insurance policy, let’s move on to discuss some considerations before making the decision to assign a policy.

Before deciding to assign a life insurance policy, it is crucial to carefully consider a few key factors. These considerations will help ensure that the decision aligns with your financial goals and meets your specific needs. Here are some important points to ponder:

• Impact on Beneficiaries: Assigning a life insurance policy may have implications for the intended beneficiaries. It is essential to consider their needs and financial security before assigning the policy to someone else or an entity. Make sure to have open conversations with the beneficiaries to discuss any changes in the policy ownership and how it may impact them.
• Future Financial Needs: Assess your own future financial needs before assigning a life insurance policy. Life circumstances can change, and it is crucial to determine if the policy’s cash value or death benefit might be required for your own financial stability or long-term goals. Balancing immediate financial needs with the desire to assign the policy is important.
• Trustworthiness of the Assignee: Consider the trustworthiness and reliability of the proposed assignee. Assigning a life insurance policy involves transferring ownership rights and responsibilities, so it is crucial to choose someone who will effectively manage the policy and fulfill the agreed-upon obligations. Conduct thorough due diligence and consider seeking legal advice to ensure the assignee is the right choice.
• Tax Implications: Assigning a life insurance policy may have tax implications. Consult with tax professionals to understand any potential tax consequences of the assignment, such as gift tax or estate tax considerations. Proper planning and knowledge of tax laws will help mitigate any unexpected tax liabilities.
• Insurance Company Policy: Review the terms and conditions of your life insurance policy regarding assignments. Some policies may have restrictions or limitations on assigning a policy, and it’s important to understand these provisions. Contact your insurance company directly to clarify any concerns or questions related to the assignment process.
• Legal Considerations: Assigning a life insurance policy involves legal documentation and agreements. It is advisable to consult with legal professionals who specialize in insurance and estate planning to ensure that the assignment is conducted in compliance with applicable laws and meets your specific needs.

Considering these factors will help you make an informed decision about whether assigning a life insurance policy is the right choice for you. Assess your individual situation, speak with professionals, and review your long-term goals to determine if assigning the policy aligns with your overall financial plan.

Now that we have explored the considerations before assigning a life insurance policy, let’s discuss some potential challenges and risks for assignees.

While assigning a life insurance policy can have its benefits, there are also potential challenges and risks that assignees should be aware of. Understanding these risks will help you make informed decisions and take necessary precautions. Here are some potential challenges and risks for assignees:

• Financial Responsibility: As the assignee, you become responsible for paying the policy premiums to keep the coverage in force. Failure to pay the premiums can result in the policy lapsing, causing loss of coverage and potential loss of the policy’s cash value.
• Potential Conflict: Assigning a life insurance policy may lead to conflicts, especially if the policyholder has multiple beneficiaries or if the assigned policy conflicts with other estate planning arrangements. It is important to communicate and coordinate with all involved parties to minimize potential disputes.
• Changing Circumstances: Life circumstances can change, and the assigned policy may no longer align with the assignee’s needs or financial goals. Review the policy periodically to ensure it still meets your objectives. If necessary, consult with professionals to explore options for policy modifications or changes.
• Loss of Control: By assigning a policy, you relinquish control over certain aspects of the policy. The assignee may need to consult the policyholder or beneficiaries before making any changes or important decisions. This loss of control should be carefully considered before proceeding with the assignment.
• Insurance Company Approval: The insurance company typically has the final say in approving the assignment. They will review and confirm the assignment agreement to ensure compliance with their policies. If the assignment is not approved, it can impede the intended transfer of ownership.
• Tax Implications: Assigning a life insurance policy may have tax consequences for the assignee, such as potential income tax on the policy’s cash value or estate tax implications. Consult with tax professionals before finalizing the assignment to fully understand these potential tax implications.

It is crucial for assignees to carefully weigh these challenges and risks against the potential benefits before accepting the assignment of a life insurance policy. Be proactive in communicating with the policyholder and beneficiaries, stay informed about policy details, and seek professional guidance to navigate any potential challenges or risks.

Now that we have discussed the potential challenges and risks for assignees, let’s wrap up our article.

Assigning a life insurance policy can be a strategic financial move that offers flexibility and control over the policy’s ownership and benefits. By designating an assignee, individuals can ensure that the policy proceeds are directed to the intended recipient or utilize the expertise of an entity to manage the policy. However, before proceeding with an assignment, it is important to carefully consider various factors.

Understanding the role, rights, and responsibilities of an assignee is vital to ensure a smooth transition and effective management of the policy. The assignee assumes ownership of the policy, enjoying benefits such as decision-making authority and control over premiums. They also have responsibilities, including making premium payments, managing the policy, and initiating claims if the insured passes away.

The process of assigning a life insurance policy involves reviewing policy terms, choosing an assignee, obtaining consent, preparing an assignment agreement, and notifying the insurance company. It is crucial to review the policy specifics and consult legal and financial professionals to ensure compliance with regulations and optimize financial outcomes.

Assigning a life insurance policy offers numerous benefits, such as control, estate planning opportunities, creditor protection, and financial assistance. However, there are considerations to keep in mind, including the impact on beneficiaries, future financial needs, and tax implications.

Assignees may face potential challenges, such as financial responsibility, conflicts of interest, changing circumstances, loss of control, and insurance company approval. These risks should be carefully assessed, and open communication with the policyholder and beneficiaries is essential to minimize disputes and ensure a smooth transition.

In conclusion, assigning a life insurance policy requires thoughtful deliberation and consultation with professionals. Assessing your financial goals, considering the needs of beneficiaries, and understanding the potential risks will help make an informed decision. Assigning a life insurance policy can provide peace of mind, but careful consideration and planning are essential to ensure the assigned policy aligns with your long-term financial goals.

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Life Insurance Assignment – What They Are and Why You Need Them

Everything You Need to Know about Absolute vs. Collateral Assignments

Table of Contents

Collateral assignment, how is a collateral assignment used, how to complete a collateral assignment, releasing a collateral assignment, death and collateral assignments, collateral assignments for the uninsurable, absolute assignment, final words.

What is a collateral assignment?

A collateral assignment of life insurance gives lenders the right to collect your policy’s death benefit up to the amount of the outstanding loan balance.

A typical scenario involves taking out a business loan .

The lender may require a life insurance policy as collateral.

The type of life insurance policy used, whether a term, whole life, or universal life doesn’t matter.

The insurance policy will pay off the balance if you die while the loan is outstanding.

Life insurance for SBA loans is required when you borrow from the SBA.

The collateral assignment applies to the entire policy, including any life insurance rider benefits that may be part of the policy.

The process is similar whether you are adding the assignment to an existing policy or are buying new coverage.

There are two parties to a collateral assignment.

• Assignor – Is the owner of the life insurance policy
• Assignee – Is the lender

Life insurance companies have standardized forms used for this purpose.

• The owner completes the form and sends it to the lender for review and signature.
• Once complete, you will send the form to the insurance company.
• The insurance company records the assignment and sends a confirmation to the owner and lender that the assignment is complete.

This may all seem confusing if you haven’t used an assignment before, but the reality is that most life insurers make it pretty easy to complete.

When you pay off your lender, you have the right to have the collateral assignment removed.

The life insurance companies have collateral release forms as well.

• The owner completes the form and sends it to the lender.
• The lender signs off on the release.
• Once complete, the insurance company records the release and sends the discharge letter to all parties.

Once complete, you should re-check with the home office to ensure that your policy released the assignment.

Your agent can help with this.

How do collateral assignments work when you die?

Check out this example:

• Policy Face Amount = $1,000,000
• Beneficiary = Your Spouse
• Original Bank Loan = $200,000
• Outstanding Loan Balance at Death = $100,000

What happens next?

• Your beneficiary will file the death claim with the life insurance company.
• The life insurance company will review the claim and see a collateral assignment attached to your policy.
• The insurer contacts the lender for an updated payoff figure.
• Payoff amounts are sent directly to the lender.
• Your beneficiary receives the balance of the policy death benefit .

For the above example, your lender would receive $100,000, and your beneficiary would receive the remaining $900,000 as intended.

I would like to remind you that you NEVER want to name your lender as the beneficiary, as they would receive the entire proceeds rather than just what was owed.

While lenders may want a life insurance policy as collateral, sometimes it’s difficult to obtain if the insured has substantial health issues .

If you have an existing life insurance policy in effect, it’s possible to use that for the assignment.

Another option that exists in some states is contingent coverage.

Contingent coverage is a one-year policy that you can renew.

The policy will exclude death from the known health issue but provide coverage for new health issues that develop or from accidental deaths .

Many lenders accept this coverage when it’s the only option available.

What is an absolute assignment?

You use absolute assignments when you permanently relinquish all ownership rights to your life insurance policy.

Some examples:

Life Insurance Settlements

With this transaction, you are selling your life insurance policy to a third party.

You may convert a term policy to permanent insurance before it is sold.

Another example may involve admitting seniors to a nursing home.

The nursing home may take over the policy you have.

1035 Exchange

A 1035 exchange is a tax-free transfer of cash value from universal life or whole life policy to another similar policy.

Gifting Life Insurance to Charities

You can use absolute assignments to permanently transfer your policy to your favorite charity.

Irrevocable Life Insurance Trusts (ILIT)

You use absolute assignments to permanently transfer your policy to an ILIT.

An example would be a survivorship policy you and your spouse own that you are transferring to the trust.

Many other potential issues may arise with transfers to an ILIT that are beyond the scope of this article.

Business Cases

If you purchased key person life insurance on an employee, absolute assignments are used to transfer ownership to the employee.

You may have questions about your life insurance assignment and how it works.

The following are general guidelines, as each situation is uniquely different.

Can the collateral assignment change the beneficiary?

No, the collateral assignment does not change the beneficiary.

The life insurance assignment gives the lender the right to receive proceeds equal to their outstanding loan balance.

Can a business be a beneficiary in a collateral assignment of life insurance?

A business can be the beneficiary of a life insurance policy that is collaterally assigned.

Life insurance assignments are common for absolute and collateral assignments.

What is most important is that we understand what is involved with this process.

That’s where we’ll help you make the best decision for your life insurance.

There is never any pressure or obligation with our life insurance service.

Please take a few minutes to submit your quote request today. Thank you.

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Absolute Assignment of Life Insurance Policies

An absolute assignment transfers all ownership rights of a life insurance policy.

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An absolute assignment of a life insurance policy involves transferring all rights and ownership decisions to another party. You could have one of several reasons for wanting to do this; for example, using the policy as collateral for a loan, or making a donation to your favorite charity at death. Making an absolute assignment is relatively simple as long as your life insurance policy allows it.

How Transfer of Ownership Works

Absolute assignment is akin to a transfer of ownership, in that you are giving all ownership rights to another party. Although you remain the insured under the contract, the new party can change the beneficiary (usually to itself), it can make decisions about investment options of a whole-life policy, and it can take any other action that does not jeopardize the policy's in-force status. You remain responsible for the premium payments, and you could be in breach of the assignment provisions if you don't pay them.

Collateral Loan Bank Assignment

Absolute assignment of life insurance is often done when a person applies for a loan. If the bank is concerned that the loan might not be repaid if you died, if might require a life policy with an absolute assignment to the bank. The bank names itself the beneficiary of the policy up to the amount of the loan balance. Any residual death benefit would go to your named beneficiary.

Financing a Charitable Gift

Another use of absolute assignment is to make a charitable gift. This approach is gaining in popularity.

Life insurance is often purchased to finance a charitable donation by the estate of a deceased individual. One drawback to this approach is that the entire gift goes through the estate and might incur probate delays and fees.

The use of an absolute assignment streamlines the process, as the charity can name itself the beneficiary of the policy. The charity can issue you a tax receipt for every premium, which you can deduct as a charitable contribution.

Absolute Assignment Legal Considerations

Insurance companies freely provide assignment forms that are straightforward and easy to fill out. Once an assignment is complete, a copy of the form should be filed with the insurance company.

The life insurance company may withhold part of its payout to any beneficiary -- including a newly designated one -- if a premium hasn't been fully paid, or because of other indebtedness. That might have legal ramifications for you and the assignee, in which the insurance company will take no part.

• Standard Life Insurance Co. of New York: Absolute Assignment Form
• Waypoint Partners: Assigning Your Life Insurance Policy
• Collateral Assignment Agreement

Philippe Lanctot started writing for business trade publications in 1990. He has contributed copy for the "Canadian Insurance Journal" and has been the co-author of text for life insurance company marketing guides. He holds a Bachelor of Science in mathematics from the University of Montreal with a minor in English.

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Assignment of insurance policies and claims | Practical Law

Assignment of insurance policies and claims

Practical law uk practice note w-031-6021  (approx. 19 pages).

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What Is Collateral Assignment of Life Insurance?

Quality Verified

Updated: December 14, 2023

• How It Works
• Overview of Application Process
• Pros and Cons
• Impact on Beneficiaries
• Alternatives

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Advertising & Editorial Disclosure

Collateral assignment of life insurance is an arrangement where a policyholder uses the face value of their life insurance policy, which can be a term or permanent life insurance policy, as collateral to secure a loan. If the policyholder dies before the loan is paid off, the lender is prioritized to receive a portion of the death benefit equivalent to the outstanding loan balance. The remaining benefit then goes to the policy's beneficiaries.

• Collateral assignment involves using a life insurance policy as security for a loan , where the lender has a claim on the death benefit if the borrower defaults or passes away before repaying the loan.
• The lender receives priority over the death benefit , which means they are paid first from the policy's payout before any beneficiaries if the loan remains unpaid.
• Various life insurance policies, including term, whole and universal, can be used for collateral assignment , depending on the insurance company's policies and the policy's value.
• If a life insurance policy lapses or is canceled during a collateral assignment, it can breach the loan agreement , potentially resulting in immediate loan repayment demands.
• After the loan is fully repaid, the policyholder must formally release the collateral assignment to restore the policy to its original status and ensure beneficiaries receive the full death benefit.

How Collateral Assignment of Life Insurance Works

The collateral assignment allows you to use your life insurance policy as security for a loan. The process involves legally designating your policy as collateral, which means if you pass away before fully repaying the loan, the lender can claim the death benefit to cover the remaining balance. You start by choosing either a term policy or whole life insurance and then complete a collateral assignment agreement. This agreement is legally binding and sets the terms for the lender to access the death benefit .

For your beneficiaries, this arrangement means the death benefit they receive could be reduced. If you die with an outstanding loan balance, the lender is paid first from the policy's proceeds. Any remaining amount goes to your beneficiaries only after the loan is settled.

For example, a policyholder with a $500,000 policy was assigned as collateral for a $200,000 loan. If the policyholder dies before settling the loan, the lender will receive $200,000 from the policy's death benefit. Meanwhile, the remaining $300,000 gets disbursed to the policy's beneficiaries.

Applying for Collateral Assignment

Applying for collateral assignment is a process moderated by your life insurance company designed to secure loans using your life insurance policy as collateral. It involves a series of steps:

Obtain a Collateral Assignment Form

Request a collateral assignment form from your life insurance provider. This form is crucial for designating the lender as a beneficiary for the loan amount. Ensure you obtain the correct form, as forms vary based on policy type and insurer.

Fill Out the Form Correctly

Complete the form with accurate details, including policy number, loan amount and lender information. Pay close attention to all sections to avoid errors that could delay or invalidate the assignment. Incomplete or incorrect information can lead to processing delays or rejection.

Signed by Both Policyholder and Lender

Ensure both the policyholder and lender sign the form, confirming the agreement. This dual signature legally binds both parties to the terms of the collateral assignment. Any discrepancy in signatures may question the form's validity.

Submit Completed Form

Submit the signed form back to the insurance company for processing. Consider using a traceable delivery method for submission to confirm receipt. Delays in submission can impact the timeline of the loan approval process.

Await Approval or Rejection From Insurance Company

Wait for the insurer to review and approve or reject the collateral assignment. The insurer may request additional information or clarification, which can extend the approval timeline.

Receive a Letter of Acknowledgment

You and your lender will receive a letter of acknowledgment from the insurer if your collateral assignment application is approved.

Obtaining Required Documentation

The required documentation for collateral assignment of life insurance is straightforward. Typically, you'll need to provide two main types of documents:

• Collateral Assignment Form: This form is critical because it officially transfers a portion of your life insurance policy benefits to the lender as collateral. It demonstrates to the lender that you have taken the requisite steps to secure your loan against your life insurance policy.
• Original Life Insurance Policy and Proof of Loan: Lenders may require your original life insurance policy to ensure it is valid and enforceable. Proof of the loan agreement or obligation, such as a mortgage note or other loan document, is also commonly required. This establishes the legitimacy of your loan and substantiates the collateral assignment.

Pros and Cons of Collateral Assignment

Utilizing a life insurance policy for collateral assignment can offer a range of benefits and potential drawbacks. This method allows you to secure loans and is often safer than using physical assets as collateral. However, you should also note the inherent risks, primarily that the lender retains the first right to your policy’s death benefit upon your death.

Impact of Collateral Assignment on Beneficiaries

While the collateral assignment of life insurance has its benefits, it’s important to remember that it can impact the amount your beneficiaries receive. If you pass away with an outstanding balance on your loan:

Your Lender Will Be Paid First

In the collateral assignment arrangement, the lender is designated as the primary beneficiary for the outstanding loan amount. This means if you pass away before fully repaying the loan, the lender is entitled to receive payment from the death benefit first. The amount collected by the lender is limited to the remaining loan balance.

Any Remaining Death Benefit Will Be Disbursed to Your Beneficiaries

After the lender's claim is satisfied, the remaining death benefit is disbursed to your policy’s designated beneficiaries. The amount they receive depends on the loan balance at the time of your death. If the loan balance is substantial, your beneficiaries will receive significantly less than the policy's full death benefit.

Alternatives to Collateral Assignment

Alternatives to collateral assignment include personal loans , home equity loans , or surrendering the life insurance policy for its cash value. None of these options require using life insurance as collateral. Each option offers different benefits and risks compared to using life insurance as collateral.

These questions covers various topics related to collateral assignments, including the requirements, implications for beneficiaries and what happens under various scenarios.

These related sections offer additional insights into concepts and alternatives connected to collateral assignments and life insurance:

Using Collateral for a Personal Loan — This link explains how to use various types of collateral for securing a personal loan, providing a broader context to the specific use of life insurance as collateral.

Term vs. Permanent Life Insurance — This resource compares term and permanent life insurance, helping to understand which types of policies can be used for collateral assignments.

Permanent Life Insurance — This page details permanent life insurance, a type commonly used in collateral assignments due to its cash value component.

Life Insurance Calculator — This page lets you calculate the appropriate amount of life insurance coverage needed, which is crucial when considering using a policy for collateral.

About Nathan Paulus

Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.

Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.

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What is an Assignee on a Life Insurance Policy?

When people take out a life insurance policy, it’s typically a step taken to prepare your loved ones for life after you pass away. What you may not know is that insurance policies are owned entities, which means they can be used as collateral for a loan or even be sold to offer money to you when you’re in a tough spot. There are also different methods available to do this, which we’ll explain in this article.

An individual who is taking out insurance will have many choices, such as whether you prefer to purchase whole life insurance or term life insurance . You also have choices when it comes to using your policy to leverage money that has already been invested in it.

Part of that is understanding the difference between a collateral assignment and an absolute assignment, so you can be sure to choose the solution that works best with your financial needs. The other part of it involves knowing the most important terms related to an assignment so that you go in with the knowledge you need.

Collateral Assignment of Life Insurance

If you have ever taken out a standard personal loan, a collateral assignment of life insurance has a lot of similarities to that process. The collateral for the loan is the life insurance policy and an organization or individual who pays out the loan is the assignee . They are also the ones who take over the policy on a conditional basis.

One important thing to know is that the assignee cannot resell the policy, make use of its cash value, or make changes to it. The assignee may only take the money for the death benefit if you, as the policyholder, default on the loan.

In the typical situation, if the collateral assignment is standing at your death, the assignee will let the insurance company know about the debt remaining, including interest. They will then be provided with that amount. If there are extra benefits, those will go to your beneficiary listed in the policy.

Absolute Assignment of Life Insurance

Another way to acquire a loan using life insurance is through an absolute assignment. This differs from collateral assignment since instead of using the loan as collateral, you are signing the full policy over to a person or entity. This person or business is considered the assignee, while the person who is selling the policy is the assignor.

The individual who buys the insurance policy gains ownership of the policy. This makes them responsible for the premiums and lets them make changes or choose different beneficiaries .

Each absolute assignment will have different terms based on the contract that is signed. For instance, it might explain that the assignor is transferring all title, rights, and interest in the policy to the assignee. Depending on the insurance company, an ownership clause may be used to make the transfer itself.

Understanding Policy Provisions

To ensure the assignee is protected, the insurance company needs to be notified that an assignment is in place. If the company doesn’t have notice of the assignment, the process might be paid to a beneficiary or a different assignee. This can be an issue since the insurance company will not pay the amount out again to another person.

Many life insurance policies come with policy provisions related to assignments. The most common include:

• The assignment is subject to all indebtedness related to the insurance company regarding the policy.
• The assignment only becomes binding when the original or duplicate is filed at the insurance company’s home office.
• The insurance provider has no responsibility for the sufficiency, effect, or the validity of the assignment.

Because of these provisions, it’s crucial to ensure that you make the assignment correctly. This applies whether it is an absolute assignment or a collateral assignment. The best thing you can do to avoid problems is to speak with an experienced insurance professional who can guide you to the best solution for your needs.

Comparing Assignments Among Life Insurance Policies

If you are in a situation where you need money and it needs to happen quickly, ask yourself whether your cash value in your life insurance policy could help you out. After you decide the answer to that, make sure that you consider the larger picture.

Going with an absolute assignment approach may be able to offer you a large sum of money at one time. However, you also need to realize that your family and loved ones will no longer have the protection that was provided by the policy. If this is a policy that you have been dutifully paying into for decades, losing all the value is something you need to decide whether you’re ready for.

On the other hand, a collateral assignment doesn’t whisk away the policy in its entirety. You can get control of your policy back as soon as you resolve your financial problem and pay back the loan. A collateral assignment is one of the most common ways to borrow from a life insurance policy to use the cash value on necessities.

Collateral assignments let you regain the benefits associated with a long-term life insurance policy at some point in the future. Since most people are familiar with paying off student loans, auto loans, and mortgages, this agreement is similar. Making all of the payments on time can help with both financial concerns in the present as well as creating long-term financial success.

Selecting Between Life Insurance Assignment Options

Every person is unique and will be in a different situation when considering a life insurance assignment. For one person, choosing a collateral assignment might be the right choice since the individual wants the life insurance benefits back after paying off the loan. Someone else may not be interested in those benefits and need a larger amount of money, which an absolute assignment can offer.

You’ll want to consider all your options before borrowing through your life insurance , whether that involves an assignment or another type of loan. Be aware of all of your options and make sure your choice is right for the present and your future financial situation.

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What Is A Collateral Assignment Of Life Insurance?

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A collateral assignment is sometimes a necessity if you’re applying for larger financing amounts such as a mortgage or business loan.

But what is a collateral assignment and how do you go about getting it on your life insurance policy? 

In this article, we’ll cover what collateral assignment is, how you can add it to your life insurance, and what alternatives there are out there. 

What Is Collateral Assignment? 

A collateral assignment is a process by which a person uses their life insurance policy as collateral for a secured loan.

In simple terms, collateral assignment is reassigning priorities for who gets paid the death benefit of your life insurance policy.

What Is a death benefit?

A death benefit or face value of a life insurance contract is the amount of money that your beneficiaries will receive from your policy when you die.

Once you apply for collateral assignment and it’s approved, your specified debtor (the loan provider) will be paid first and then your beneficiaries will receive what is left over in your life insurance policy.

This is different from using your cash value to loan money as you are taking out a loan from another financial institution and using your policy as a guarantee that you’ll cover any debt when you die. 

For example, let’s say you want to take out a secured loan from your local bank and want to use your life insurance policy as a collateral assignment.

In this situation, you’d still have to pay back any debt you have with interest during the loan period. 

However, the life insurance policy would be used if the borrower dies and there was an outstanding loan balance remaining. 

Secured Loans vs. Unsecured Loans

Secured loans are debts that are backed by assets that a lender can claim if the debt isn’t repaid. These types of loans often offer better interest rates and more generous payment terms.

Unsecured loans are debts that don’t have collateral. These types of loans are more expensive to repay and considered riskier than secured loans.

Source: Pexels

How Does Applying for Collateral Assignment Work?

The process for getting collateral assignments for life insurance is the same as when you apply for new life insurance coverage. 

All you’ll be doing is indicating to your life insurance provider that your lender will be given priority for the amount of money you have borrowed through them.

There is an:

Application process.

Underwriting process.

Offer that you’ll receive.

You’ll be required to name beneficiaries as well as indicate ownership of the life insurance policy in the collateral assignment form which will be provided by your life insurance company.

This is because you’re changing the terms of your payout and your life insurance provider will need to follow these instructions once you die.

NB Some insurance companies don’t offer collateral assignment on new loans and generally only provide this feature to an existing life insurance policy.

You should check beforehand to see what will be required to apply for a collateral assignment. If you need help finding plans that offer this, send an email to a licensed insurance agent today.

Once you’ve assigned a new collateral assignee to your life insurance policy, they will be entitled to lay a claim on your death benefit for any debt you have with them.

For example, let’s say you take out a collateral assignment life insurance policy worth $200,000 for a loan of $75,000 over 7 years at an interest rate of 18%.

If you die after five years, based on these figures, you’ll still have $41,231.02 owed on your loan.

Your $200,000 life insurance plan will be used to cover this and your beneficiaries will receive the remaining $158 768.98 from your life insurance policy.

Your lender is only allowed to take the amount outstanding on the debt owed and cannot take more. 

What about Missed Payments and Cash Value Life Insurance?

If you have a permanent life policy with a cash value account, sometimes called cash value life insurance, your lender will have access to it to cover missed payments on your loan.

For example, let’s say you miss a payment on your loan and have a collateral assignment. Your lender will be able to access your cash value account and withdraw that month’s payment to cover your debt.

Who Can You Add as a Collateral Assignee?

You can add any person or institution as a collateral assignee to your life insurance policy if you owe them money.

This can include banks, lenders, private individuals, businesses, or credit card companies. 

The most common collateral assignments are for business loans and mortgages. This is because they are loans for high amounts that are paid off over several years. 

In fact, some banks and financial lenders may require that you add them as collateral assignees when you apply for any of the financing options mentioned below.

Common Collateral Assignees Include:

💵 Bank loans

💳 Credit cards

🏡 Mortgages

💼 Business loans

What Do I Do If I’ve Paid Off My Debt?

If you’ve managed to pay off your debt - firstly, congratulations! Secondly, you’ll want to notify your life insurance company that you’ll be changing your collateral assignments on your life policy.

While there is no legal claim that a company can make to debts that aren’t owed anymore, there may be a hold up in paying out the death benefit to your beneficiaries and other collateral assignees.

Life insurance companies will have to figure out who must be paid first, according to the order stated in your collateral assignment terms.

In general, life insurance policies will settle claims within 24 hours of being notified of a policyholder’s death.

The process can be delayed if you do not release your collateral assignees from your life insurance contract. 

Tips to Make Sure Your Life Policy Is Paid Out Quickly

Here are some tips if you want your beneficiary claims to be handled as fast as possible:

1) Keep a copy of your life insurance policy and policy number in a safe place or with your lawyer, financial advisor, or estate planner.

2) Speak to your beneficiaries about your policies and give them the contact details of the relevant life insurance company.

3) Make sure your life insurance contract is updated to reflect your latest list of beneficiaries.

4) Make sure you have your beneficiaries' details listed in the contract or with your lawyer.

The Benefits of Using Collateral Assignment of Life Insurance

While adding a collateral assignment to your current life insurance policy may require an application, paperwork, and time, there are benefits:

Many lenders like it: Banks and financial institutions sometimes prefer it when applicants use their life insurance policy as collateral for a loan. This is because they know that their debt will be serviced long-term by your insurance company which makes their loan to you a lower risk.

Your private property won’t be jeopardized: The last thing you want when you go into debt is to put your personal items, such as your car, investments, or home on the line as collateral. Using collateral assignment is an alternative to this and can protect you in the event that you can’t service your debt.

It can be affordable for some people: If you’re in good health and young, you may be paying affordable rates for permanent life cover. In situations like this, it can make sense to use your life cover as collateral for debts you’ve incurred.

What Are Some Alternatives to Collateral Assignment?

Term Life Insurance: Getting a term life insurance contract to cover specific debts is one way of ensuring your estate and family are protected when you die.

There are multiple types of term life insurance plans and they are more affordable than permanent life insurance. This makes options like level term life insurance and decreasing term life insurance ideal for different types of debts you may have over your lifetime.

What Is Term Life?

Term life is a temporary life coverage option that lasts for a specific period of time. It is different from permanent life insurance which lasts until you die or you stop paying premiums.

Term life contracts are typically between 5 to 20 years, however, you can get renewable term life plans and even a forty-year term life plan .

Borrow from your life insurance: If you have a permanent life insurance policy, such as universal, whole, or indexed life cover, you can borrow money from your cash value account. 

However, keep in mind that you’ll be required to pay interest on any amount that you borrow and any amount of debt incurred will be deducted from your policy’s death benefit when you die.

What Is Cash Value?

Cash value is a feature of permanent life insurance plans that policyholders can contribute additional money toward while they have a policy in force.

This money is set aside in a cash value account which is tax-deferred and can be used in a number of ways.

In some cases, if your policy allows it, you can end your contract and get the cash surrender value of it. This amount is usually much less than the value of your total life insurance contract. 

Our Verdict on Collateral Assignment

Many banks, lenders, and financial institutions want long-term guarantees that you’ll be able to service your debt if anything happens to you.

In some situations, getting collateral assignments on your life insurance to cover these debts is a good option for people who are trying to access finance from these institutions. 

However, there is a risk that your death benefit payout may be delayed for your beneficiaries if you don’t keep your different collateral assignees up to date.

If you already have a life insurance policy, you should contact your provider to find out what the process is and what you’ll need to do to change the collateral assignees on your policy.

If you don’t have a policy yet, our advice is to look at all of your options before you decide to take a permanent life insurance contract with a collateral assignment.

There are alternatives out there that are more affordable if you’re looking to protect your family and estate from debt.

Term life is one such option that is adaptable to your life and easy to get. 

For example, a decreasing term life insurance policy might be the right choice for someone who has recently bought a home and wants to cover their mortgage while they pay it back.

Another option is final expense insurance, which is a permanent life policy for smaller amounts, usually under $50,000.

With final expense insurance, your beneficiaries can pay for anything they want, including any debts you may have had in your life.

The process for applying is simple and you won't have to go through a medical exam or intensive underwriting as you would with traditional permanent life insurance. 

If you need any assistance with finding, comparing, or learning about the different life insurance options to cover your debts, speak to one of our expert advisors today at 1-888-912-2132 or [email protected] .

Where Can I Learn More about Life Insurance?

If you’re looking to learn more about life insurance, different kinds of coverage, or costs, visit our life insurance hub to find our latest articles.

We do the research so that you don’t have to and our articles cover complicated topics like what is a cash value account, what is key person insurance, or how long life insurance takes to pay out a death benefit.  

If you need help with quotes, try out a life insurance quote finder or reach out to us via email at [email protected] to get in touch with a licensed life insurance agent for your state.

How to assign a life insurance policy

​What is meant by assigning?

Interest in a life insurance policy can be transferred from the policyholder to a lender or relative by assignment of policy. Here the policyholder is known as the assignor and the person in whose favour the policy has been assigned is called assignee.

​Types of assignment

There are two types of assignment: Conditional assignment: This is done when the insured wishes to pass benefits of the policy to a relative in case of early death or certain conditions. The rights of the policyholder are restored once the conditions are fulfilled. Absolute assignment: This is done as a part of consideration for a loan in favour of the lender/bank/lending institution. In such an assignment, the insured loses his rights in the policy and the absolute assignee can deal with it independently.

​Notice of assignment

The insured needs to either endorse the policy document or make a deed of assignment and register the same with the insurer. A form prescribed by the insurers must be filled and signed. In case of conditional assignment, your reason needs to be mentioned as well.

​Documents required

Proof of income. Self attested copy of photo ID and address proof. Self attested copy of PAN card.

Fees and stamp duty

If the assignment is made by endorsement on the policy document, it is exempt from stamp duty. However, in case of a separate deed, stamp duty is payable.

​Acceptance and the right to reject

If the insurance company decides to register the assignment, it will record it and inform the assignor. On paying a fee, the assignee can obtain an acknowledgement. The insurer also has a right to reject if it believes that the assignment is not bona fide or against the interest of the policyholder or public interest or for the purpose of trading the insurance policy. (Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)

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Absolute Assignment of a Life Insurance Policy

Absolute Assignment means complete Transfer of Rights. The person who transfers the rights is called the Assignor and the person to whom the rights are being transferred is called the Assignee.

The process of transferring rights of a Life Insurance Policy is called Assignment. There are 2 types of Assignment.

• Absolute Assignment
• Conditional Assignment

Hence Absolute Assignment means completely transferring whole and sole rights of the policy from the Assignor to the Assignee without any further terms and conditions applicable.

The process of assignment is complete only when the original Policy Document has been endorsed or a fresh Policy Document has been issued in favour of the Assignee.

Let’s take an example:

Rahul owns a Life Insurance policy of value Rs 5 lakhs. He would like to gift it to his best friend Ajay.

Thus, in that case, he would like to perform Absolute Assignment of the policy in Ajay’s name such that the death or maturity proceeds are directly paid to him. Rahul’s family members or nominee does not have any right on the policy money.

After the assignment is executed, Ajay becomes the absolute owner of the policy. If he wishes, he may again transfer it to someone else for any other reason. This type of Assignment without any further clauses attached to it is called Absolute Assignment.

Example in real life of Absolute Assignment happens in case of an Insurance Policy being taken by the employer as a perquisite for the employee. Once the policy is purchased, it is transferred to the employee’s name under Absolute Assignment clause. Hence the employee becomes the owner of the policy, but the employer pays for it till the end. Thus, instead of paying the employee cash, they purchase an insurance policy in their name and add it to their Annual Income Package.

Deepak Yohannan is the Founder & CEO of MyInsuranceClub. He enjoys writing on Personal Finance and focusses on explaining the basic concepts of insurance in simple language.

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Transferable Insurance Policies (TIPS): Meaning, How They Work

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

What Are Transferable Insurance Policies (TIPS)?

Transferable Insurance Policies (TIPS) are life insurance policies  that allow for the transferable assignment of the benefactor. In these cases, the owner sells the policy to an investor at a discount to the face value of the insurance. The purchaser, who becomes the benefactor of the policy, will pay all subsequent premiums and receive the settlement value when the insured person becomes deceased. It's also known as a viatical settlement .

Understanding Transferable Insurance Policies (TIPS)

Transferable insurance policies have a guaranteed principal , similar to a bond , but an uncertain maturity. Since they are sold at deep discounts, TIPS often have high yields. While TIPS contain no external risks, such as interest rate fluctuations , they do have the risk of an extending maturity. The longer an insured person lives, the less return for the investor.

The two primary types of TIPS include viaticals and life settlements. Both types function in similar ways, however, have different expected maturities. Viaticals are policies on terminally ill people, which have a life expectancy of two years. Life settlements have senior citizens as the insured, which extends the life expectancy to an estimated two to 15 years.

Supreme Court Ruling

The U.S. Supreme Court ruled in 1911 in Grigsby v. Russell that people had the right to sell their policies in this way. "It is desirable to give to life policies the ordinary characteristics of property. To deny the right to sell except to persons having such an interest is to diminish appreciably the value of the contract in the owner’s hands," the court ruled.

Transferability of life insurance policies  gained momentum in the 1980s when people suffering from AIDS sold their policies, sometimes to obtain money for their care. 

At least 43 states have set up rules on viatical settlements after complaints that syndicates were buying policies for speculative purposes. "Thirty of the regulated states have a statutorily mandated two-year waiting period before one can sell their life insurance policy, while 11 states have five-year waiting periods and one state, in Minnesota, has a four-year waiting period. Most states have provisions within their life settlement acts whereby one can sell their policy before the waiting period if they meet certain criteria (i.e. owner/insured is terminally or chronically ill, divorce, retirement, physical or mental disability, etc.)," according to the Life Insurance Settlement Association.

Michigan and New Mexico regulate viatical settlements only, while Alabama, Missouri, South Carolina, South Dakota, Wyoming, and Washington, D.C. do not regulate viatical nor life settlements. Most unregulated states and states that regulate viaticals only, with the exception of Missouri, which has a one-year contestability period , have a two-year contestability period under their general insurance code, according to LISA.

Library of Congress. " Grigsby v. Russell ," Page 156. Accessed March 26

Life Insurance Assessment Association. " Life Settlement Regulation by State Map ." Accessed March 26, 2021.

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Assignment in Insurance Policy | Meaning | Explanation | Types

Table of Contents

• 1 What is Assignment in an Insurance Policy?
• 2 Who can make an assignment?
• 3 What happens to the ownership of the policy upon Assignment?
• 4 Can assignment be changed or cancelled?
• 5 What happens if the assignment dies?
• 6 What is the procedure to make an assignment?
• 7 Is it necessary to Inform the insurer about assignment?
• 8 Can a policy be assigned to a minor person?
• 9 Who pays premium when a policy is assigned?
• 10.1 1. Conditional Assignment
• 10.2 2. Absolute Assignment

What is Assignment in an Insurance Policy?

Assignment means a complete transfer of the ownership of the policy to some other person. Usually assignment is done for the purpose of raising a loan from a bank or a financial institution .

Assignment is governed by Section 38 of the Insurance Act 1938 in India. Assignment can also be done in favour of a close relative when the policyholder wishes to give a gift to that relative. Such an assignment is done for “natural love and affection”. An example, a policyholder may assign his policy to his sister who is handicapped.

Who can make an assignment?

A policyholder who has policy on his own life can assign the policy to another person. However, a person to whom a policy has been assigned can reassign the policy to the policyholder or assign it to any other person. A nominee cannot make an assignment of the policy. Similarly, an assignee cannot make a nomination on the policy which is assigned to him.

What happens to the ownership of the policy upon Assignment?

When a policyholder assign a policy, he loses all control on the policy. It is no longer his property. It is now the assignee’s property whether the policyholder is alive or dead, the assignee alone will get the policy money from the insurance company.

If the assignee dies, then his (assignee’s) legal heirs will be entitled to the policy money.

Can assignment be changed or cancelled?

An assignment cannot be changed or cancelled. The assignee can of course, reassign the policy to the policyholder who assigned it to him. He can also assign the policy to any other person because it is now his property. We can think of a bank reassigning the policy to the policyholder when their loan is repaid.

What happens if the assignment dies?

If the assignee dies, the assignment does not get cancelled. The legal heirs of the assignee become entitled to the policy money. Assignment is a legal transfer of all the interests the policyholder has in the policy to the assignee.

What is the procedure to make an assignment?

Assignment can be made only after issue of the policy bond. The policyholder can either write out the wording on the policy bond (endorsement) or write it on a separate paper and get it stamped. (Stamp value is the same, as the stamp required for the policy — Twenty paise per one thousand sum assured). When assignment is made by an endorsement on the policy bond, there is no need for stamp because the policy is already stamped.

Is it necessary to Inform the insurer about assignment?

Yes, it is necessary to give information about assignment to the insurance company. The insurer will register the assignment in its records and from then on recognize the assignee as the owner of the policy. If someone has made more than one assignment, then the date of the notice will decide which assignment has priority. In the case of reassignment also, notice is necessary.

Can a policy be assigned to a minor person?

Assignment can be made in favour of a minor person. But it would be advisable to appoint a guardian to receive the policy money if it becomes due during the minority of the assignee.

Who pays premium when a policy is assigned?

When a policy is assigned normally, the assignee should pay the premium, because the policy is now his property. In practice, however, premium is paid by the assignor (policyholder) himself. When a bank gives a loan and takes the assignment of a policy a security, it will ask the assignor himself to pay the premium and keep it in force. In the case of an assignment as a gift, the assignor would like to pay the premium because he has gifted the policy.

Types of assignment

Assignment may take two forms:

• Conditional Assignment.
• Absolute Assignment.

1. Conditional Assignment

It would be useful where the policyholder desires the benefit of the policy to go to a near relative in the event of his earlier death. It is usually effected for consideration of natural love and affection. It generally provides for the right to revert the policyholder in the event of the assignee predeceasing the policyholder or the policyholder surviving to the date of maturity.

2. Absolute Assignment

This assignment is generally made for valuable consideration. It has the effect of passing the title in the policy absolutely to the assignee and the policyholder in no way retains any interest in the policy. The absolute assignee can deal with the policy in any manner he likes and may assign or transfer his interest to another person.

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What is Assignment and Nomination in Life Insurance?

‘Assignment’ and ‘Nomination’ are two most common terms used in a life insurance policy document. Let us understand the importance of these two terms in-detail.

By Future Generali. Updated On Oct 06, 2022

Your life insurance policy is a contract between you (insured) and the insurance company (insurer). The contract is filled with jargon. To the extent possible, we must understand all the terms mentioned in the policy bond (certificate). ‘Assignment’ and ‘Nomination’ are two most common terms used in the insurance world.

For instance, in the event that you plan to apply for a home loan, your home loan provider will surely use these terms. Hence, it is best to be sure and understand exactly what the terms mean before you make a decision to buy the policy.

What is assignment in life insurance?

A life insurance policy can be assigned when rights of one person are transferred to another. The rights to your insurance policy can be transferred to someone else for various reasons. The process is known as assignment.

An “assignor” (policyholder) is the person who assigns the insurance policy. An “assignee” is the person to whom the policy rights have been transferred, i.e. the person to whom the policy has been assigned.

In the event rights are transferred from an Assignor to an Assignee, the rights of the policyholder are canceled, and the Assignee becomes the owner of the insurance policy.

People often assign their life insurance policies to banks. A bank becomes the policy owner in this case, while the original policyholder continues to be the life assured whose death may be claimed by either the bank or the policy owner.

Types of Assignment

There are two ways to assign an insurance policy. They are as follows:

1. Absolute Assignment

During this process, the rights of the assignor (policyholder) will be completely transferred to the assignee (person to whom the policy rights have been transferred). It is not subject to any conditions.

As an example, Mr. Rajiv Tripathi owns a Rs 1 Crore life insurance policy. Mr. Tripathi wants to gift his wife this policy. Specifically, he wants to make “absolute assignment” of the policy in his wife's name, so that the death benefit (or maturity proceeds) can be paid directly to her. After the absolute assignment has been made, Mrs. Tripathi will own this policy, and she will be able to transfer it to someone else again.

2. Conditional Assignment

As part of this type of assignment, certain conditions must be met before the transfer of rights occurs from the Assignor to the Assignee. The Policy will only be transferred to the Assignee if all conditions are met.

For instance, a term insurance policy of Rs 50 Lakh is owned by Mr. Dinesh Pujari. Mr. Pujari is applying for a home loan of Rs 50 Lakh. For the loan, the banker asked him to assign the term policy in their name. To acquire a home loan, Mr. Pujari can assign the insurance policy to the home loan company. In the event of Mr. Pujari’s death (during the loan tenure), the bank can collect the death benefit and get their money back from the insurance company.

Mr. Pujari can get back his term insurance policy if he repays the entire amount of his home loan. As soon as the loan is repaid, the policy will be transferred to Mr. Pujari.

In the event that the insurer receives a death benefit that exceeds the outstanding loan balance, the bank will be paid from the difference between the death benefit and the loan and the balance will be paid directly to the nominee. In the above example, the remaining amount (if any) will be paid to Mr. Pujari’s beneficiaries (legal heirs/nominee).

Key Points to know Note About Assignment

In regards to the assignment, the following points should be noted:

• A policy assignment transfers/changes only the ownership, not the risk associated with it. The person assured thus becomes the insured.
• The assignment may lead to cancellation of the nomination in the policy only when it is done in favour of the insurance company due to a policy loan.
• Assignment for all insurance plans except for the pension plan and the Married Women's Property Act (MWP), can be done.
• A policy contract endorsement is required to effect the assignment.

What is nomination in life insurance?

Upon the death of the life assured, the nominee/ beneficiary (generally a close relative) receives the benefits. Policyholders appoint nominees to receive benefits. Under the Insurance Act, 1938, Section 39 governs the nomination process.

Types of Nominees

In a life insurance policy, the policyholder names someone who will receive the benefits in the event of the life assured's death. Here are a few types of nominees:

1. Beneficial Nominees

In accordance with the law, the beneficiary of the claimed benefits will be any immediate family member nominated by the policyholder (like a spouse, children, or parents). Beneficiary nominees are limited to immediate family members of the beneficiary.

2. Minor Nominees

It is common for individuals to name their children as beneficiaries of their life insurance policies. Minor nominees (under the age of 18) are not allowed to handle claim amounts. Hence, the policyholder needs to designate a custodian or appointee. Payments are made to the appointee until the minor reaches the age of 18.

3. Non-family Nominees

Nominees can include distant relatives or even friends as beneficiaries of a life insurance policy.

4. Changing Nominees

It is okay for policyholders to change their nominees as often as they wish, but the latest nominee should take priority over all previous ones.

Key Points to Note About Nomination

In regards to the nomination, the following points should be noted:

• In order to nominate, the policyholder and life assured must be the same.
• In the case of a different policyholder and life assured, the claim benefits will be paid to the policyholder.
• Nominations cannot be changed or modified.
• The policy can have more than one nominee.
• As part of successive nominations, if the life assured appoints person “A” as the first person to receive benefits. Now, in the event of the life assured’s death after person “A” dies, the claim benefits will be given to person “B”. The benefits will be available to Nominee “C” if Nominee “A” and Nominee “B” have passed away.

What is the difference between nomination and assignment?

Let's talk about the differences between assignment and nomination.

Nomination and Assignment serve different purposes. The nomination protects the interests of the insured as well as an insurer in offering claim benefits under the life insurance policy. On the other hand, assignment protects the interests of an assignee in availing the monetary benefits under the policy. The policyholder should be aware of both of them before buying life insurance.

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What is ‘Assignment’ of Life Insurance Policy?

Insurance is a contract between the insurance company (insurer) and you (policyholder) . It is a contract with full of jargon. As much as possible, we must try to understand all the insurance terms mentioned in the policy bond (certificate) . One such insurance jargon which is mostly used is Assignment .

If you are planning to apply for a home loan, your home loan provider may surely use this term. So, what is Assignment? Why assignment of a life insurance policy is required? What are different types of assignment? What are the differences between Assignment & Nomination?

What is Assignment?

Assignment of a life insurance policy means transfer of rights from one person to another. You can transfer the rights on your insurance policy to another person / entity for various reasons. This process is referred to as ‘ Assignment ’.

The person who assigns the insurance policy is called the Assignor (policyholder) and the one to whom the policy has been assigned, i.e. the person to whom the policy rights have been transferred is called the  Assignee .

Once the rights have been transferred from the Assignor to the Assignee, the rights of the policyholder stands cancelled and the assignee becomes the owner of the insurance policy.

Assigning one’s life insurance policy to a bank is fairly common. In this case, the bank becomes the policy owner whereas the original policyholder continues to be the life assured on whose death the bank or the policy owner is entitled to receive the insurance money.

Types of Assignment

The assignment of an insurance  policy can be made in two ways;

• Example : Mr. PK Khan owns a life insurance policy of Rs 1 Crore. He would like to gift this policy to his wife. He wants to make ‘absolute assignment’ of this policy in his wife’s name, so that the death benefit (or) maturity proceeds can be directly paid to her. Once the absolute assignment is made, Mrs. Khan will be the owner of the policy and she may again transfer this policy to someone else.
• Example : Mr. Mallya owns a term insurance policy of Rs 50 Lakh. He wants to apply for a home loan of Rs 50 Lakh. His banker has asked him to assign the term policy in their name to get the loan. Mallya can conditionally assign the policy to the home loan provider to acquire a home loan. If Mallya meets an untimely death ( during the loan tenure) , the banker can receive the death benefit under this policy and get their money back from the insurance company.

• In case if the death benefit received by the banker is more than the outstanding loan amount, the insurer will pay the bank the outstanding dues and pay the balance to the nominee directly. The balance amount (if any) will be paid to Mallya’s beneficiaries ( legal heirs / nominee) .

How to assign a life insurance policy?

The Assignment must be in writing and a notice to that effect must be given to the insurer. Assignment of a life insurance policy may be made by making an endorsement to that effect in the policy document (or) by executing a separate ‘ Assignment Deed ’.  In case of assignment deed, stamp duty has to be paid. An Assignment should be signed by the assignor and attested by at least one witness.

Download absolute assignment deed sample format / conditional assignment deed format.

Nomination Vs Assignment

Nomination is a right given to the policyholder to appoint a person(s) to receive the death benefit (death claim) . The person in whose favor the nomination is effected is termed as ‘nominee’. The nominee comes into picture only after the death of the life assured (policy holder) . The nominee will not have the absolute right over the money (claim proceeds) . The other legal heirs of the policy holder can also recover money from the nominee.

(However, as per Insurance Laws (Amendment) Act, 2015 – If an immediate family member such as spouse / parent / child is made as the nominee, then the death benefit will be paid to that person and other legal heirs will not have a claim on the money)

Under nomination, the rights of the policyholder are not transferred. But, assignment is transfer of rights, interest and title of the policy to some other person (or) entity. To make assignment, consent of the insurer is also required.

Important Points

• Assignment of policies can be done even when a loan is not required or for some special purposes.
• If you assign the policy for other purpose other than taking a loan, the nomination stands cancelled.
• If the policy is assigned, then the assignee will receive the policy benefit. Death benefit will be paid to the Nominee, in case the policy is not assigned.
• The policy would be reassigned to you on the repayment of the loan (under conditional assignment) .
• Types of insurance policies used for assignment purpose to get business loans, generally include an endowment plan, money back policy or a ULIP. Home loan providers generally ask for the assignment of Term insurance plans on their names. (The term plan tenure should be more than the home loan tenure)
• An assignment of a life insurance policy once validly executed, cannot be cancelled or rendered in effectual by the assignor. The only way to cancel such assignment would be to get it re-assigned by the assignee in favor of the assignor.
• You can also raise a loan against your policy from your insurance company itself. In this case, your policy would have to be assigned to insurance company.
• An insurer may accept the assignment or decline. (The insurer shall, before refusing to act upon the endorsement, record in writing the reasons for such refusal and communicate the same to the policy-holder not later than thirty days from the date of the policy-holder giving notice of such transfer or assignment)
• In case of death of the absolute Assignee (to whom the policy rights have been transferred under absolute assignment) , the rights under the policy will be transferred to the legal heirs of the assignee.
• You can also assign a life insurance policy under Married Women’s Property Act . (At the time of making the application (buying a policy), a separate MWPA form has to be filled by the proposer for it to be covered under MWP Act. Do note that the existing life insurance policies cannot be assigned under MWP Act)
• Partial assignment or transfer of a policy can also be made. But banks will accept any of your life insurance policies as long as the sum assured is equal to or greater than the loan amount.

Hope you find this post informative and do share your comments.

(Image courtesy of Stuart Miles at FreeDigitalPhotos.net)

About The Author

Sreekanth Reddy

Can a LIC policy be assigned to someone not related by blood??

Dear Chowdhury, Yes, it is possible. However, Assignment is not permitted on all life insurance policies issued under How to buy Term Life Insurance under Married Women’s Property Act?

Very useful and gathered more knowledge

Hi, I got a question in CFP EXAM 5( case study paper) with regard to assignment of money back policy to a minor. I would like to know can a conditional assignment be made to a minor and if yes what about the premium that is yet to be paid? and would a guardian need to be appointed till the minor attains majority? and is it possible that an absolute assignment can be made?

Dear Dhaarini,

Where an assignment is made in favour of minor, the policy can not be dealt with during the minority of the assignee, even with consent of natural guardian or appointed guardian. This means minor assignee cannot raise loan, surrender or further assign the policy during his/her minority.

If the assignment is in favour of a minor, in the event of claim, policy money cannot be paid to him, as he cannot give valid discharge. It is therefore desirable that where the assignee is minor, testamentary guardian should be appointed in respect of all the properties of such minor including the policy moneys. The father i.e. natural guardian of the minor can only appoint the testamentary guardian. The appointment can be done by a separate instrument or on the back of the policy.

What if a wife has taken a policy in the name of his husband and put the nominee herself and also pays all the premiums herself, and now they are taking divorce. So, now can husband assign the policy to her and what benefits she can receive after assignment. Can she withdraw tha amount of the policy??

Dear Monika, Yes, he can make an Absolute assignment in the name of Wife..

Under Life Assurance one can assign a policy only if that policy is a policy of his/her own life. Here wife has taken a policy on her husband life and hence assignment does not arise. In the event of death of her husband she receives the death benefit irrespective of her relationship at the time of death. This is because under Life Assurance the Insurable Interest is required at the proposal stage and needs not be present at the claim stage.

I wanna give my policy to new owner

A assigned his policy to his brother B and B is paying premiums. A’s nominee is his father. What will happen if B dies?

Dear Mr Naidu, May I know what type of Assignment is this??

A assigned his policy to his brother B, out of love and affection as absolute assignment. Whose life is covered?. What happens if B dies?

Dear Mr Naidu, If the assignee (Mr B) dies, then his/her legal heirs will be entitled to the policy money. Kindly note that an assignee cannot make a nomination on the policy which is assigned to him.

“Absolute assignment is generally made for valuable consideration e.g. raising of loan from an individual / institution. This assignment has the effect of passing the title in the policy absolutely to the assignee and the policyholder in no way retains any interest in the policy. The absolute assignee can deal with the policy in any manner he likes and may even transfer his interest to another person or surrender the policy. Under absolute assignment when the assignee (Mr B) dies the benefits go to the legal heirs of the assignee and not to the heirs of the life assured.”

What is the procedure to get the policy assigned? How much time does it take?

Thanks for this. I always like to use study materials by Indians in preparing for my professional exams. The contents here are superb and easy to understand.

Once assignment is done, on whose name Renewal receipts and PPC will be generated.

Dear Gayu ..in the name of Policyholder only.

My colleagues were looking for USPS PS 1000 this month and were informed of an online platform that hosts a ton of fillable forms . If people are wanting USPS PS 1000 too , here’s https://goo.gl/Qqo6in .

Dear Sreekanth, I am having an LIC policy for the past 10 year. now i would like to assign the same to my mother. Now after the assignment, whose life is covered and who gets all the benefit? Do i have to appoint a new nominee after the assignment?

Dear Bhavik ..Life cover will be in your name only. Your mother can get the benefits. You can make her as the nominee.

If policy assigned to absolute assignment from A to B. B is the assignee of the policy and he have all rights of the policy. After assignment who will have a life cover A or B. Who will get the death benefits

Dear Senthil, Life cover – A. Beneficiary – B.

Thanks for this information, Let me know who will pay the remaining premium after assignment.and what are the other reasons for assignment except loan and gift. Manish

Dear Manish ..The policy holder only has to pay the premium.

I have a ULIP assigned to my home loan. I have paid two annual premiums till now. If I dont pay the next premium, will it have any impact on my home loan ? I know that my ulip will get discontinued in this case but can the bank force me to pay the premium legally ?

Dear Kalis, If sum assured falls below the outstanding loan amount then you banker may ask you to assign another policy or pay the premiums on this one.

Thanks. Sum assured is already below the loan amount. In this case, can bank take any legal action against me if I don’t pay the premium?

Dear Kalis..Why do you want to take this risk?

Who will have to pay tax if single premium ULIP where premium is >20% of sum assured is assgned to spouse & she then sureender it.

Dear Vishal ..The insured (policyholder)..

my father aged 72 has taken a ULIP policy on my Child with coverage 10 lakhs .But now he would like to Assign the policy to my mother’s Name aged 67.

Please Clarify weather the life coverage and policy benefits will be transferred to my Mother or will it continue with my son.

Dear Nisha, May I know who is the ‘insured’ in this policy? Is the child just a nominee to the policy? “If he assigns the policy for other purpose other than taking a loan, the nomination stands cancelled. If the policy is assigned, then the assignee will receive the policy benefit. “

Hi.. Really nice blog.very informative and useful. I liked the way You explained very briefly about Assignment’ of Life Insurance Policy.

Hi Srikanth,

Nice article on Assignment!

I Just wanted to know If i nominate my spouse for the life insurance or nominate my child and appoint my spouse how these to things are different in terms claim settlement of life insurance.

Ideally I may want my spouse to look-after my child education until they turn major and they do not misuse the claim amount.

Please let me know if possible your contact number so that we discuss further..

Please suggest.

Thanks, Shravan

Dear Shravan, If you are planning to buy a new Term plan, you can assign the policy under MWP Act by mentioning the Percentages (share in death benefits) among your legal heirs (spouse & kids). You also have the option to write a WILL and give detailed instructions about how the claim amount (if any, on such policy) should be used or allocated.

Dear Sreekant, Thanks for such valuable information. Please do correction on your post that the existing life insurance policies cannot be assigned under MWP Act. Pl correct me if I am wrong. Please let me know that even if I assign the policy unconditionally to the bank for home loan purpose, after repaying the home loan successfully, the bank should re-assign the policy to me. If it does not do this, what options do I have? Thanks again.

Dear Vivek, Yes, only new insurance policies can be assigned (while purchasing new ones) under MWP. I should have written the sentence as ‘You can also assign a new life insurance policy under….’ Thank you for pointing this out. (I have provided all the details about MWP act in another article).

If a policy is assigned with absolute assignment, it cannot be cancelled. It can be done only by another valid re-assignment. So, the banker has to re-assign it after the repayment of loan. When you do not wish to give away your complete control over policy, do not go in for absolute assignment.

thanks for prompt response.

ReLakhs.com is a blog on personal finances. The main aim of this blog is to help you make INFORMED financial decisions by presenting the content on money matters in a simple, unbiased and easy to understand manner.

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Key takeaways

• Whole life insurance is a type of permanent life insurance policy that guarantees a death benefit for the policyholder's entire life as long as premiums are paid.
• The cost of whole life insurance is generally more expensive than term life insurance, but it may be a good option for those looking for lifetime coverage and a guaranteed payout for their beneficiaries.
• Whole life insurance policies have a cash value component that accumulates over time and can be borrowed against, but the interest rate may not be as high as other investment options.
• Whole life insurance policies can be sold or surrendered for cash, but the value amount may vary depending on how long the policy has been in force.

There are a few different types of life insurance policies to choose from when you’re shopping for coverage. That includes whole life insurance, which is a type of permanent life insurance policy that remains in place for your entire life and guarantees a death benefit as long as premiums are paid. However, while whole life insurance may offer a number of unique perks, it may not be the best option for everyone. Before you make a decision on your life insurance coverage, it may benefit you to learn more about the pros and cons of whole life insurance, as well as how it works, in order to make the best choice possible for your unique circumstances.

What is whole life insurance?

As the name suggests, whole life insurance offers coverage for the life of the policyholder, as long as premiums are paid, with a death benefit paid out to a beneficiary or beneficiaries when the policyholder dies. Whole life features a cash value, which is held in an account that accumulates over time. Whole life insurance interest rates are fixed, with a minimum guaranteed rate. Whole life insurance compound interest means that your money will grow steadily, but your rate of return may not be as significant as it would be with some other types of investment.

Types of whole life insurance

There are several forms that whole life insurance can take, with each one catering to different financial needs and preferences. Choosing the right type of policy depends on your risk tolerance, financial goals and your health considerations. Here are four common kinds of whole life insurance:

• Traditional whole life insurance: This type of policy provides a guaranteed death benefit along with a cash value component that accumulates over time. Premiums are usually level and remain constant throughout the policyholder’s life. The cash value provides a stable and predictable investment.
• Participating whole life insurance: This insurance type allows policyholders to share in the insurer’s financial success. When the insurance company generates profits, policyholders may receive dividends. These dividends can be used to increase the cash value, purchase additional coverage or be paid out in cash. This adds a layer of flexibility and potential for increased returns.
• Simplified whole life insurance: You may want to explore simplified whole life insurance if you are worried that you may not qualify for traditional policies due to health issues. Although there is usually no medical exam, you are likely to have to answer health-related questions on the application. It typically requires less stringent underwriting, making it more accessible. While premiums may be higher compared to traditional policies, the simplicity of the application process is a key feature.
• Guaranteed whole life insurance : These policies provide a guaranteed death benefit and cash value accumulation with fixed premiums. Guaranteed policies do not require you to undergo a medical exam to qualify or answer questions about your health and can be a good choice for older individuals who don’t qualify for traditional policies. Guaranteed whole life insurance usually has a low death benefit cap, often around $25,000.

Compare life insurance providers quickly and easily

See which provider is right for you.

Whole life insurance combines life insurance with an investment component.

• Coverage for life
• Tax-deferred savings benefit if premiums are paid
• 3 variations of permanent insurance: whole life, universal life and variable life include investment component

Term life insurance is precisely what the name implies: an insurance policy that is good for a specific term of time.

• Fixed premium over term
• No savings benefits
• Outliving policy or policy cancellation results in no money back

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Coverage.com, LLC is a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in states where it is licensed . Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.

How does cash value work?

Cash value is a key component of permanent life insurance. This term refers to the portion of your premium payment that is set aside in an interest-bearing account, where it gradually accumulates value. For some individuals, the cash value serves as a form of savings within the policy, and it can play a role in a strategic financial plan.

It is possible to take out a loan against the cash value of your policy. This loan will accrue interest, which you will need to pay back along with the loan amount itself. If it is not repaid, it reduces the death benefit. Depending on your policy, the cash value may also be used to pay premiums.

Borrowing against the cash value can be a fairly simple process, and you may have a favorable interest rate, which makes it an appealing option for a policyholder looking for income with an easy approval process. In addition, loans are not reported to credit bureaus, so your credit score will not be impacted.

Best whole life insurance

Whole life policies are common, and most life insurance companies offer them. Bankrate annually analyzes insurers to determine which ones offer the best whole life insurance . To determine the top companies, we look at J.D. Power’s U.S. Individual Life Insurance Study , which assesses customer satisfaction. We review each company’s financial strength rating with AM Best and the total number of complaints registered with the National Association of Insurance Commissioners (NAIC). Finally, we look at each company’s coverage options and potential riders while also reviewing how easy they make it to do your business digitally. In 2024, MassMutual received the Bankrate Award for Best Whole Life Insurer.

Companies writing solid whole life policies, based on Bankrate’s research, include:

• State Farm : State Farm received a 2024 Bankrate Award for Best Term Life Insurance and Best Universal Life Insurance, but it also offers whole life policies. State Farm is in the top spot in J.D. Power’s most recent customer satisfaction ranking, and it offers several whole life options, including limited pay, single premium and guaranteed issue final expense insurance.
• Nationwide : Nationwide offers three whole life options: 20-Pay WL, which features guaranteed premiums and cash value and an easy application process; simplified whole life, which is available to clients who also have Nationwide car or home insurance; and WL 100, for those seeking permanent coverage with guaranteed premiums and death benefit. The company holds the second place spot in the J.D. Power customer satisfaction ranking.
• MassMutual : Winner of a 2024 Bankrate Award for Best Whole Life Insurance, MassMutual scores above average on the J.D. Power customer satisfaction ranking. It has also earned the highest score possible (A++) from AM Best, indicating that it manages its financial resources carefully. MassMutual offers a range of rider options, including waiver of premium, accelerated death benefit and guaranteed insurability.
• New York Life : New York Life is another above-average scorer with J.D. Power and AM Best. It offers three whole life options: a standard whole life policy; Custom Whole Life, which allows you to enhance cash value growth or opt for higher premiums within a shorter duration; and Secure Wealth Plus, which features an expedited underwriting process and cash value that is set up to increase most during the policy’s initial years.
• Northwestern Mutual : Northwestern Mutual won a 2023 Bankrate Award for Best Universal Life Insurance, and it also offers whole life insurance policies with guaranteed payouts, dividend options and level premiums. It scores above average with both J.D. Power and AM Best. Available riders include waiver of premium, additional purchase and long-term care.

How much does whole life insurance cost?

Generally, the cost of whole life insurance is more expensive than the same amount of term life insurance coverage. This is because whole life insurance policies are guaranteed to be paid out as long as the policy remains in force and premiums are paid.

Your specific whole life insurance policy rate is determined by multiple factors, including the amount of coverage you choose and the type of underwriting involved. Other factors that may impact your premium include:

• Health status

Is whole life insurance worth it?

Some people may prefer whole life insurance because it remains in effect for the insured’s entire life and because the cash value component may add additional financial flexibility. However, these financial components also typically contribute to a higher rate compared to premiums associated with a term life insurance policy. Whether or not whole life insurance is worth it to you likely depends on your financial situation, budget and long-term goals.

Whole life insurance may be best for people who want a policy to remain in force for their entire lifetime and guarantee a payout to their beneficiaries. The cash value may provide a future nest egg to pay for a child’s education or supplement retirement.

On the other end of the spectrum, some people may prefer the shorter-term coverage that comes with a term life policy . For instance, if you only want coverage for a limited amount of time — such as when your children are dependent or while you still owe on a mortgage — you may find that a term policy better suits your needs. If deciding between term life vs. permanent life insurance , evaluating your immediate and long-term needs, budget and purpose for life insurance may help you make a choice.

Pros and cons of whole life insurance

Here is why whole insurance can be good, and some of the cons that can be associated with this policy as well.

• Provides death benefit for your beneficiary
• Policy lasts your entire life (as long as you pay the premium)
• Premiums are fixed
• Able to borrow from the cash value of policy
• Premiums are more expensive than term insurance
• Taking a loan reduces death benefit to your beneficiaries unless you pay it back
• Cash value accrues slowly, with low interest
• More complex than term insurance

Frequently asked questions

Is a whole life policy a good investment, can i sell my whole life insurance policy if i decide i don't need it anymore, can i cancel my whole life policy, what is the difference between whole and term life insurance, how much life insurance do i need.

Universal life insurance

Comparing Life Insurance Quotes

Life insurance: Understanding term, whole, and supplemental policies

Life doesn’t always go our way. Most people hope for a long, healthy life. Unfortunately, an unexpected illness or injury can derail those plans and force our families to change course. 

Nobody wants to think about a loved one dying prematurely. But planning ahead by purchasing a life insurance policy can offer survivors some financial protection as they cope with the loss. And educating yourself on your options and reading Trustpilot reviews can help you choose a reliable provider to ensure your loved ones are covered.

What is life insurance? 

If someone dies while their life insurance policy is in force, their beneficiaries get a payout. They can use this money to cover medical or funeral costs, pay off a mortgage, fund a child’s education, or however else they see fit. 

This can be an important financial planning tool if you have people who rely on you financially or logistically. If you’re the main wage earner in your family, your family will lose your income when you die. They would then need to replace that income or reduce their spending. 

Here’s why one customer purchased life insurance from Choice Mutual :

Parents and caregivers who don’t work outside the home might also need life insurance. If a stay-at-home parent died suddenly, the other parent would need to hire help to keep the house running and the children cared for. A life insurance payout could allow the surviving parent to hire help and continue working.

What types of life insurance are available? 

Life insurance comes in a few different flavors, including term life, whole life, and supplemental life. 

What is term life insurance? 

Term life insurance covers you for a specified term, often 10, 15, 20, or 30 years. A homeowner might choose a 30-year term life policy in case they pass away while their spouse is still paying off the mortgage. A new parent might choose a 20-year term life policy to cover their children in case the parent dies before their children are financially independent. 

This customer chose a 20-year term life insurance policy from eFinancial Life Insurance :

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What is an actuarial table in life insurance?

A life insurance actuarial table is a statistical tool insurers use to calculate someone’s life expectancy based on a range of factors, including age and gender. Also known as “mortality tables,” the information within these tables helps insurers set policy premiums and manage their financial bottom lines.

» MORE: Behind the scenes: How does life insurance underwriting work?

How do actuarial tables work?

When you buy life insurance , the insurer needs to calculate the amount of risk it’s taking on. That’s where actuarial tables for life insurance come in: They estimate the average life expectancy for each age group. With this information, insurers know how much money they need to set aside to pay out life insurance claims in a given year.

Your risk of dying, based on mortality table calculations, is also a key factor in determining your life insurance premiums . The longer your life expectancy, the better your rates are likely to be.

» MORE: Average life insurance rates

There are a few types of actuarial tables. Most insurers use period life tables, which lay out the number of additional years someone is expected to live based on their current age and gender. For example, a 35-year-old woman could expect to live an additional 46.2 years in 2020, according to the American Council of Life Insurers [0] American Council of Life Insurers . ACLI 2022 Life Insurers Fact Book . Accessed Aug 24, 2023. View all sources . But a 100-year-old man had a life expectancy of 1.8 years.

Mortality tables have many uses beyond life insurance. For example, the IRS uses actuarial tables to determine the amount of required distributions for 401(k)s and other retirement accounts. The Social Security Administration also uses period life tables to make projections about whether it has enough money to pay future benefits.

Learn more about life insurance applications

Life insurance application: What you need to know

How to buy term life insurance

Life insurance medical exams: What to expect

How to get life insurance with pre-existing conditions

On a similar note...

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4 common policy types plus key insurance planning tips for families.

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Portrait of a young family in front of farmhouse

Insurance provides a financial safety net for life’s challenges, ensuring peace of mind in times of uncertainty. To celebrate the International Day of Families, explore ways to safeguard your family’s future and create a lasting legacy of love and support with these insurance planning insights.

Common Types Of Insurance For Families

Life insurance.

This provides financial compensation to beneficiaries upon the policyholder’s death. Life insurance safeguards your family’s financial future by ensuring support for your dependents after your death. Several types cater to different needs and financial goals.

For example, term life insurance offers coverage for a specific period, like 10, 20, or 30 years. It is generally more affordable and is ideal for temporary needs such as raising children or paying off a mortgage. However, it does not build cash value and expires if you outlive the policy.

Whole life insurance, on the other hand, covers you for your entire life and includes a savings or investment component. This type is more costly but provides lasting security and financial flexibility.

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Another type is universal life insurance, which allows you to adjust premiums and benefits, combining permanent coverage with a savings element that grows based on interest rates. This flexibility can be crucial as your financial circumstances evolve.

Health Insurance

The right health insurance plan can significantly improve your access to necessary medical services and how you manage out-of-pocket costs. You can choose between individual and family plans depending on your healthcare needs.

Family plans are typically more comprehensive and cost-effective if multiple family members require regular medical attention. When selecting a plan type, you have options like Health Management Organizations (HMOs), which require choosing a primary care physician and getting referrals for specialists, or Preferred Provider Organizations (PPOs), which offer more flexibility in choosing providers but often come at a higher cost.

Understanding deductibles, copayments, and coinsurance is crucial as these determine how much you pay out of pocket for healthcare services before your insurance covers the costs. Lower premiums can mean higher deductibles and copays, so finding a balance that fits your financial situation is important.

Equally essential is preventative care, which includes routine check-ups, vaccinations, and screenings. These services can help you avoid more severe health issues down the line and are often covered without additional out-of-pocket costs under many health plans.

Selecting the optimal health insurance involves comparing these elements alongside the specific health needs of your family, ensuring that everyone’s health is safeguarded without straining your finances.

Disability Insurance

This insurance protects your income if you cannot work due to illness or injury. There are two main types based on the length of coverage: short-term disability insurance covers you for a few months, providing immediate financial relief after an incident, while long-term disability insurance offers coverage for an extended period, possibly until retirement.

When choosing disability insurance, it’s important to understand the coverage amounts and the elimination period—the time between the onset of a disability and when benefit payments begin. For example, a longer elimination period generally results in lower premiums but requires that you have sufficient savings to cover expenses until the benefits are paid out.

You should also note that policies vary in their definitions of disability. Some cover the inability to perform your specific job duties, while others only pay out if you are incapable of working at all. Consider your individual needs and risk exposure when selecting a policy.

Property Insurance

This protects your family’s physical assets. A common example is homeowners insurance, which safeguards your home and belongings against damage from fires, storms, burglaries, and other incidents. It typically includes liability coverage, which protects you against legal claims if someone is injured on your property.

Another example is auto insurance, which is mandatory in many areas and protects you from financial losses resulting from car accidents. It can cover repairs to your vehicle, responsibility for damage to others, and, optionally, medical expenses for injuries.

For all types of property insurance, it’s important to understand what your policy covers and what it excludes. Knowing your coverage limits and any applicable deductibles is also key, as these factors significantly affect your out-of-pocket costs after an incident.

How To Determine Coverage Needs

Identify potential risks.

These risks can vary widely but typically include scenarios such as premature death, illness or disability, significant property damage, or potential liability claims. Each of these events can have a profound impact on your family’s financial well-being.

For instance, the unexpected death of a breadwinner could leave your family struggling to meet everyday expenses, let alone future financial goals. Similarly, a severe illness or disability can lead to high medical costs and lost income, while substantial property damage or liability claims can drain your financial resources.

Understanding these risks is fundamental to crafting an insurance strategy that addresses your specific vulnerabilities.

Assess Financial Impact

This involves a detailed analysis of your family’s financial situation, including income sources, debt obligations, and future expenses such as education and retirement.

For example, considering income replacement needs is crucial if the family’s primary earner were to unexpectedly pass away or become disabled. How much income would be needed to sustain the household’s current lifestyle, and for how long?

Additionally, evaluating any debts and ongoing financial obligations, such as mortgages or car loans, is essential. Future expenses like college tuition and retirement savings need careful consideration to ensure that long-term goals can still be met in the face of challenges.

Assessing these areas helps you understand the financial stakes involved and guides you in selecting the appropriate levels and types of coverage.

Match Insurance Products To Needs

Finally, the information gleaned from identifying risks and assessing financial impact must be used to select the appropriate insurance products, balancing the cost of premiums against the breadth and depth of coverage.

Prioritizing essential coverage areas is key—life and health insurance are typically fundamental, but disability, property, and other liability coverage should not be overlooked.

Working with a financial advisor can be particularly helpful in this stage. They can provide expert guidance on the types of insurance products that would best suit your family’s needs and help develop a customized plan that considers both current and future financial scenarios.

This tailored approach ensures that your insurance portfolio is as effective and efficient as possible, providing confidence that your family is well-protected against life’s uncertainties.

Tips For Choosing The Right Insurance Company

Research insurance companies.

Start by investigating the financial strength and stability of potential insurance providers. An insurance company with a strong financial rating is more likely to be able to meet its obligations to policyholders, especially in paying out claims.

Agencies like A.M. Best, Moody’s, and Standard & Poor’s provide ratings that indicate an insurer’s financial health and claims-paying ability.

Customer service is another critical aspect. Responsive, courteous service can make the process of filing and settling claims smoother and less stressful.

Lastly, consider the flexibility and variety of policy options. A company that offers a range of insurance products and customizable features provides more opportunities to tailor coverage to fit your specific needs. This flexibility can be particularly valuable as your insurance needs evolve.

Compare Quotes And Coverage

Obtain quotes from multiple insurers to compare costs and coverage details. Use online comparison tools to streamline this process, but make sure to look beyond the price. Analyze the specifics of what’s covered, their limits, and any exclusions or conditions.

Consider working with an independent insurance agent who can offer a range of products from different insurers. These agents are not tied to one company and can provide unbiased advice based on your needs. They can also help you navigate complex policy details and fine print, ensuring you make an informed decision.

Read Reviews And Testimonials

Look for information from current and former customers to gauge their experiences with the insurance company, particularly in terms of customer service and claims handling. For example, websites like Consumer Reports, Trustpilot, and Better Business Bureau can offer insights into customer satisfaction and common issues.

Seek recommendations from friends, family, or professional contacts who have had direct experiences with insurance companies. Personal anecdotes can provide context that raw data and online reviews cannot, such as how the company treats its customers during stressful times.

Final Thoughts

Insurance protects your family from the financial strain of unexpected circumstances, ensuring that you can navigate life’s challenges with greater ease and security.

Remember to regularly review and update your policies to ensure that your coverages are aligned with your family’s circumstances. Consult expert financial advisors for tailored guidance.

By carefully selecting and managing your insurance coverage, you create a robust safety net that can help maintain your family’s lifestyle and aspirations, even when faced with adversity.

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How to collect a life insurance payout

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• Collecting a life insurance payout after a loved one dies is a fairly straightforward process.
• Start by gathering your loved one's life insurance documents, preferably before their death.
• Next, notify the insurer and carefully fill out and submit your claims documents.

Losing a family member can be really hard. Late last year, my father died from prostate cancer, leaving a big hole in our hearts. But he did one very good thing for my mom decades before finding out he had cancer. He signed up for three life insurance policies that added up to a significant payout.

While I've written dozens of articles about life insurance and know the processes well, this was my first time actually going through the steps of collecting life insurance. I learned a few new tips to make the process easier while doing it myself. 

Here's what everyone should know about collecting life insurance when someone dies.

Keep close track of life insurance policies

If all goes well, everyone in your family will live a long, healthy life and your relative will outlive any term life insurance policies they may have. I was lucky to have three years' notice to help my mom get her finances in order before my dad died, and that included getting life insurance policies organized.

Because unfortunate and unexpected accidents and illnesses happen, it's important to have an open conversation with your family about life insurance. Few people like to talk about their demise, but you can't collect life insurance payments when you don't know about the policies.

Common life insurance policies include:

• Term life insurance
• Whole or universal life insurance
• Group life insurance

When organizing your family's insurance files, make sure to include policies that were bought individually or through an employer benefit plan. Periodically update your records, so you and your family have quick access to any insurance documents in the event of a worst-case scenario.

Notify the insurer of the death

Some financially savvy people may be able to skip to the next step, but my mom and I found it easiest to call each life insurance company to notify them of the death and ask what forms were needed. That way, we didn't have to guess and risk filling out the wrong form or missing something important.

In all three cases, the insurance companies were friendly and helpful. They were able to email me copies of the claim forms that we could fill out on the computer or by hand. Each insurer has different rules about death certificates — some want notarized originals, while others take photocopies or scans.

List out what your insurer requires and get to work filling out your claim forms.

Complete claim forms and pick a payment method

The bulk of the information required on each claim form was simple and straightforward. We needed my parents' contact information, my dad's Social Security number, and basic information about his death. There were no tricks or hoops to jump through, though the long forms were a bit tedious to complete.

One of the most important areas on each claim form asked about how my mom wanted to be paid, as she was the listed beneficiary on each policy. She opted for a direct deposit where it was available, as it's a secure way to get paid as quickly as possible. Direct deposit is much more secure than the mail, where checks may be lost or stolen.

Before my dad's death, we opened a new online checking account and investment account in my mom's name. We used her new checking account for the payments.

Submit claim forms and death certificates

Once you've dotted your i's and crossed your t's, you can send in your claim form and any required supporting documents. We asked for eight copies of my dad's death certificate just in case we needed extras. Two of the three life insurers wanted original copies, while the third was happy with a scanned copy submitted via email.

Closely follow any directions on the claim form to ensure your payment is sent out as quickly as possible. If you forget anything, it can add weeks while they ask for missing documents, you send them in, and they take time to process and review everything again.

Follow up if necessary

Hopefully, you'll see the money show up in your account within a few weeks. If it takes more than two or three weeks, you should consider reaching out to the insurer to ensure your forms have been received and nothing is missing.

If you don't have life insurance already, it can be a big gift to your dependents if you're no longer around. The money my mom received didn't change her life, but it should be enough, combined with other savings and Social Security, to comfortably maintain her standard of living indefinitely. That, after all, is what life insurance is all about.

Editorial Note: Any opinions, analyses, reviews, or recommendations expressed in this article are the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any card issuer. Read our editorial standards .

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Surrendering life insurance policies can cost you – How about selling them in secondary market?

I n India, life insurance remains an underutilised investment avenue, with a penetration ratio of just 3.20 percent of GDP and a density of $69 (premium in USD per capita), ranking among the lowest globally. One reason for this underutilisation is the long-term commitment required by life insurance premiums, which can become burdensome amidst changing financial priorities and life circumstances. Many policies lapse due to non-payment, often driven by misconceptions about returns and the perceived inflexibility of life insurance as a financial product.

To address these challenges, there’s a compelling case for formalising India’s secondary market for life insurance policies. Unlike in developed markets such as the US and Canada, where such markets thrive, India’s secondary market remains largely informal and unregulated. Moneylenders in industrial towns often acquire policies from cash-strapped individuals, providing immediate relief in exchange for policy ownership.

Life policies’ assignment will help unlock liquidity

A formal secondary market would transform this landscape, benefitting policyholders, investors, and insurance companies alike. Policyholders would have the opportunity to unlock the cash value of policies they no longer need, receiving fair compensation for their investments. Institutional investors would gain access to a novel low-risk, high-profitability investment avenue, while insurance companies would witness increased demand and attractiveness for life insurance products.

Also Read: Joint Home Loan: Key things to keep in mind before taking a joint loan

The potential benefits extend beyond individual stakeholders. A formal secondary market could inject significant liquidity into the economy by unlocking the value trapped in lapsed and forgotten policies. This idle capital could then be channelled into productive investments, benefiting broader economic growth.

Policyholders will stand to benefit significantly. One key advantage is the ability to monetise their life insurance policies through assignment. Through this process, policyholders can assign their policies to institutional investors or other interested parties in exchange for immediate liquidity. This arrangement offers policyholders an alternative to surrendering their policies or letting them lapse, thus realizing the intrinsic value of their insurance investments.

The process of life insurance assignment

The process of assignment involves the policyholder transferring the rights and benefits of the insurance policy to a third party, typically an investor or a financial institution. This transfer is facilitated by formal agreements and processes that ensure transparency and fairness. By engaging in assignments within a regulated secondary market, policyholders can negotiate competitive terms and receive fair compensation reflective of the policy’s worth.

Recently, innovative financial instruments backed by life insurance policies have made their debut on the Bombay Stock Exchange. For instance, Pass-through-certificates (PTCs) issued by India Endowment Trust, backed by LIC policies, offer investors a risk profile akin to sovereign bonds with guaranteed returns. These initiatives signal a promising shift towards leveraging life insurance assets in new and innovative ways within India’s financial ecosystem.

Government and regulators play a crucial role in overseeing and facilitating the formalisation of India’s secondary market for life insurance policies. The India Endowment Act is a key regulatory framework designed to support initiatives like pass-through-certificates (PTCs) issued by entities such as the India Endowment Trust. These regulators ensure that transactions within the secondary market adhere to legal and ethical standards, thereby safeguarding the interests of policyholders, investors, and insurance companies.

An underutilised avenue

The landscape of life insurance in India is evolving, driven by a recent surge in market interest amidst rising LIC (Life Insurance Corporation of India) Ltd’s share prices. However, amidst this financial excitement, the core purpose of life insurance often gets overshadowed. Life insurance plays a vital role in protecting families against unforeseen circumstances, providing a safety net for loved ones in times of need, besides promoting long-term investments.

Despite its importance, life insurance remains underutilised in India, with low penetration rates and policy lapses due to changing financial priorities and misconceptions about returns. To address these challenges and unlock the true value of life insurance, there’s a compelling case for formalising India’s secondary market for life insurance policies. This transformation not only benefits policyholders seeking liquidity but also presents a promising opportunity for investors and insurers to optimize the financial landscape for greater inclusivity and efficiency. Life insurance isn’t merely an investment vehicle for short-term gains; it serves a crucial role in protecting against life’s uncertainties and safeguarding loved ones in the event of a breadwinner’s demise.

Benefits for policyholders, insurers and investors

In conclusion, formalizing the secondary market for life insurance policies represents a transformative step towards enhancing financial inclusivity and efficiency in India. By empowering policyholders to unlock liquidity, providing investors with attractive investment opportunities, and bolstering the appeal of life insurance products, this market evolution holds the potential to reshape India’s financial landscape for the better.

(By Ranjit Kulkarni, Research and Strategic Acquisition Head of ACESO)

Disclaimer: Views and facts expressed above are those of the author. They do not necessarily reflect the views of financialexpress.com . Readers are advised to consult their financial planner before making any investment.