An assignment of a life insurance policy is valid only if it has been properly filed at the home office of the insurance company. If an assignment is improperly filed, the insurance company may refuse to honor the assignment and refuse to pay the policy to the assignee. This is an important consideration in any assignment, because a purported assignment must meet certain conditions. Once an assignment is filed, it is binding only after the original or duplicate is filed at the insurance provider’s home office.
When you assign a life insurance policy, you must follow the instructions in the policy to avoid any misunderstandings. The insurance company will provide the necessary paperwork to complete the assignment. Once you get the carrier’s approval, you can inform the lender to proceed with the underwriting process. This process is simple, and a creative assignment may work well. A life insurance assignment doesn’t require approval from the insurance carrier.
When a life insurance policy is assigned, the rights of the policy are transferred from the policyholder to the assignee. A policyholder may choose to assign his or her rights to another person for a variety of reasons. The person who assigns the rights is known as the Assignor, while the person to whom the rights are transferred is known as the Assignee. When the rights of the policy are transferred to the Assignee, the rights of the Assignor are cancelled, and the Assignee is now the owner of the policy.
Assigning a life insurance policy is common practice. While the original policyholder remains the life assured, the bank receives the insurance money upon the death of the insured. The process is known as an absolute assignment. In this way, the rights of the Assignor to the Assignee are transferred. The assignment has no conditions attached. It is usually accepted by the lender. It is important to contact the bank before assigning a life insurance policy.
Life insurance policies can have cash values. The cash value can be withdrawn, but withdrawals of this value will reduce the death benefit. Loans of life insurance policies are generally non-taxable. However, they can only be made up to a certain percentage of the cash value. Failure to pay premiums may result in the bank cancelling the policy and using the cash value as repayment. The owner of the policy can’t assign it again.
In addition to the policy’s death benefit, the policyholder can nominate another person to receive the death benefit. A nominee will come into play when the life assured dies, but the nominee will not have absolute rights to the money. Any other legal heirs of the policyholder may be able to recover the money. Assignment is the transfer of rights and title, which requires the consent of the insurer. When assigning a life insurance policy, the insured should follow the insurer’s instructions and abide by all applicable laws.
A collateral assignment is similar to an ownership transfer, but it is more limited. The lender is protected from a claim to the policy’s cash value, and the policy owner retains all rights. The assignment of rights is legally recognized as a limited transfer and the lender will receive the money only if the policy owner fails to meet the repayment terms. However, it is important to remember that a collateral assignment is a limited transfer, and the lender cannot force the assignee to repay the money twice.
