Collateral Assignment
Legal and regulatory terms governing life insurance contracts.
What Is Collateral Assignment?
A collateral assignment is the temporary transfer of specific rights in a life insurance policy to a lender as security for a loan. Unlike a full ownership transfer, only enough rights are assigned to satisfy the debt. If the insured dies while the loan is outstanding, the lender receives the unpaid loan balance from the death benefit, and the remainder goes to the named beneficiaries. Once the loan is repaid, the assignment is released and full ownership rights revert to the policyholder. Collateral assignments are common in SBA and business financing, and they must be executed in writing and filed with the insurance carrier.
Nevada Context
Nevada lenders frequently accept life insurance as collateral for business loans. The Nevada Division of Insurance requires assignments to be documented and filed with the carrier to be enforceable.
How It Affects You
If you use your policy as loan collateral, your beneficiaries' death benefit may be reduced by the outstanding loan balance. Maintain clear records of the assignment and payoff status.
Collateral Assignment in Practice
A Las Vegas business owner assigns his illustrative $1,000,000 whole life policy to a bank as collateral for a $200,000 business loan; upon his death, the bank receives $200,000 and beneficiaries receive the remaining $800,000.
Dollar amounts shown are illustrative. Actual amounts vary by carrier, applicant age, health status, and individual underwriting.
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