What is Assignment?
Assignment in insurance is the process by which the policyholder (assignor) transfers the policy’s rights, title, or ownership to another party (assignee). This transfer can be done partially or entirely and is often used as collateral for loans or as a way to pass on the policy benefits to another individual. Assignments are common in life insurance policies, where the policyholder may transfer benefits to a lender or financial institution.
There are two types of assignment in insurance: absolute assignment and collateral assignment. Absolute assignment involves transferring complete ownership and control of the policy to the assignee. In contrast, collateral assignment allows the assignee to claim the policy’s benefits only to the extent necessary to cover a debt or obligation.
In the context of life insurance, an assignment can be useful if the policyholder wants to use the policy’s value as security for a loan. If the loan is not repaid, the lender can claim the policy’s benefits to recover the owed amount. After the debt is settled, any remaining benefits go to the original beneficiaries.
The assignment of an insurance policy typically requires notifying the insurance company and submitting the necessary documentation to complete the transfer. The process may involve terms and conditions depending on the insurer’s policies.