In a collateral assignment, which statement about ownership is true?

In a collateral assignment, which statement about ownership is true?

• A. The lender becomes the policy owner.
• B. The assignee becomes the policy owner during the loan.
• C. The beneficiary becomes the owner.
• D. The original owner retains ownership, and the loan is secured by the policy.

Answer: (D)

In collateral assignment, the policy owner keeps ownership of the policy. The lender simply holds a collateral interest to secure the loan, meaning a lien on the policy’s value (typically the death benefit up to the loan amount). This arrangement protects the lender if the loan isn’t repaid, because upon the insured’s death the death benefit is first used to satisfy the outstanding loan, with any remaining proceeds going to the beneficiary. If the loan is repaid, the lien is released and ownership remains with the original owner.

In collateral assignment, the policy owner keeps ownership of the policy. The lender simply holds a collateral interest to secure the loan, meaning a lien on the policy’s value (typically the death benefit up to the loan amount). This arrangement protects the lender if the loan isn’t repaid, because upon the insured’s death the death benefit is first used to satisfy the outstanding loan, with any remaining proceeds going to the beneficiary. If the loan is repaid, the lien is released and ownership remains with the original owner.