Collateral Assignment
What Does Collateral Assignment Mean?
Collateral assignment refers to the transfer of an asset’s ownership rights from the borrower to the lender until the loan is fully repaid. This transferred asset can include the borrower’s life insurance policy.
Insuranceopedia Explains Collateral Assignment
A borrower’s asset is often a requirement for taking out a loan. This asset should hold considerable value, such as a house or a car. By yielding ownership rights to the lender, the borrower provides the lender with security for the loan.
Once the loan is fully paid, the borrower regains ownership of the asset. However, if the borrower fails to repay the loan, the lender becomes the rightful owner of the asset.
When insurance is used as collateral assignment, the lender is designated as the beneficiary. If the borrower defaults on the loan, the lender retains this status and receives the benefits paid out by the policy.
