Definition
Collateral Assignment
Collateral assignment is a conditional transfer of a life policy to a lender as security for a loan, with rights reverting once the loan is repaid.
When a borrower pledges a life policy to secure a home or business loan, the lender becomes a conditional assignee. If the borrower dies before repaying, the insurer pays the lender the outstanding amount and the balance to the nominee or assignor; on full repayment, the policy reverts to the policyholder.
Collateral assignment is a common feature of loans linked to credit life or existing policies. It differs from an absolute assignment, which permanently transfers all rights, and overrides any nomination to the extent of the lender's secured interest.
Related terms
- Assignment of PolicyAssignment is the legal transfer of the rights, title and interest in a life insurance policy from the policyholder to another person or entity.
- NominationNomination is the act of naming a person to receive the policy proceeds on the policyholder's death, without transferring ownership of the policy.
- Conditional AssignmentA conditional assignment transfers a life policy's rights to an assignee subject to specified conditions, with the rights reverting to the assignor once those conditions are met.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.