Life Insurance: What Is an Absolute Assignment?

Through absolute assignment of a life insurance policy, you turn all of the rights, liabilities, and benefits that come with your policy over to another party. Because life insurance benefits are fully assignable, you could assign them to anyone, including a business. 

Using Absolute Assignment in a Loan Agreement

If you have a life insurance policy, you could assign the policy over to a lender as collateral for a loan. If your policy has a cash value and you fail to repay the loan, the lender can cash out the policy to recover the money owed. Should you die before repaying the loan, your insurance company will pay the lender a certain amount of money to cover the debt. Any money that is left over from the death benefit would be paid to your designated beneficiaries.

Lenders will typically be willing to accept a life insurance absolute assignment as collateral for many types of loans. Yet before you use this technique, carefully consider the ramifications of risking your life insurance policy for a loan.

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