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Collateral Assignment of Life Insurance
"Life insurance does not just provide a tax free payment to your heirs, it is a powerful leveraging tool. Assignment of collateral can help you secure a business, personal or home loan. The sky is the limit! A Roth, IRA or 401k cannot do this for you. It is prohibited by the government. See how you can unlock the power of leverage within a permanent insurance policy!"
What Is a Collateral Assignment of Life Insurance?
A collateral assignment of life insurance is a conditional assignment appointing a lender as the primary beneficiary of a death benefit to use as collateral for a loan. If the borrower is unable to pay, the lender can cash in the life insurance policy and recover what is owed.
Businesses readily accept life insurance as collateral due to the guarantee of funds if the borrower dies or defaults. In the event of the borrower's death before the loan's repayment, the lender receives the amount owed through the death benefit, and the remaining balance is then directed to other listed beneficiaries.
The borrower must be the owner of the policy, but not necessarily the insured, and the policy must remain current for the life of the loan with the owner continuing to pay all necessary premiums. Any type of life insurance policy is acceptable for collateral assignment, provided the insurance company allows assignment for the policy.
A permanent life insurance policy with a cash value allows the lender access to the cash value to use as loan payment if the borrower defaults. Many lenders do not accept term life policies as collateral because they do not accumulate cash value and the term of the policy may be too short to accommodate the loan.