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What You Should Know
- A collateral assignment allows you to pay off a loan with your life insurance death benefit
- Lenders may or may not accept a collateral assignment depending on the type of policy you have
- If you pay off your loan before you die, you can remove the collateral assignment in order for your beneficiaries to receive the full death benefit of your life insurance policy
If you need to take out a loan, or if you have taken out a loan, and you need collateral, you may be curious to learn about life insurance companies that allow the assignment of collateral.
Plenty of life insurance companies allow you to use a collateral assignment with your policy.
Essentially, a collateral assignment on your life insurance policy allows you to name a lender as your beneficiary. When you die, if your loan has not been paid off, the lender will receive the full payment of the loan from your death benefit.
If any amount remains from your death benefit, your beneficiaries will receive the money.
There are alternatives to using your life insurance policy as collateral, such as a collateral assignment with your mortgage. You can see a collateral assignment of a life insurance sample by doing a bit of research online.
When you look for a collateral assignment example, you can see how the process works and whether the loan you have or a future loan you may need will require that you use your life insurance policy as collateral.
As you shop around for life insurance companies that allow the assignment of collateral, be sure to use online quote tools to compare multiple companies at once and see how much you could save on your policy.
You may want to consult a life insurance guide to make sure you know the ins and outs of different policies and how much you might expect to pay for life insurance.
In fact, you can use our free quote tool above to find and compare rates from top life insurance companies in your state.
Which life insurance companies allow collateral assignments?
While there are some life insurance companies that don't allow collateral assignments, there are plenty of companies that do. Depending on where you live, you likely have a lot of options if you want to use a collateral assignment with your life insurance policy.
Some of the top life insurance companies that may allow you to use a collateral assignment include:
- Northwestern Mutual
- Haven Life
- State Farm
- Banner Life
- Principal
- Pacific Life
- Guardian Life
- Nationwide
- Primerica
- MassMutual
- New York Life
- Allstate
- John Hancock
- Protective
- Mutual of Omaha
- Prudential
In order to know for sure whether a life insurance company will allow for a collateral assignment of your policy, you may need to speak to a representative. You can do this as you shop around for life insurance policies online.
What is considered the collateral on a life insurance policy loan?
A collateral assignment on a life insurance policy allows for you to use the death benefit of a life insurance policy to pay off a loan.
In order to use a collateral assignment on your life insurance, you will need to use the following process:
- Apply for a life insurance policy and name your beneficiaries.
- Complete a collateral assignment of life insurance form naming your lender.
- Wait for the life insurance company to acknowledge the collateral assignment.
- If the loan is paid in full, the lender must send a form to that effect to ensure your beneficiaries receive the full benefit of your policy.
In order for you to create a collateral assignment on your life insurance policy, you must find a company that allows it, and you also need to make sure you have a lender that accepts life insurance as collateral.
How is a collateral assignment used in a life insurance contract?
If you have a collateral assignment in effect, your lender will get the death benefit of your life insurance policy if you pass away before paying off your loan.
If your death benefit exceeds the amount of your loan, your beneficiaries will receive the remainder. Most of the time, lenders won't accept a collateral assignment on a term life insurance policy because it may expire before the loan is paid.
With a whole or permanent life insurance policy, a lender would be more likely to accept a collateral assignment as a potential payment.
Once you pay off your loan, you can dissolve your collateral assignment. But you will need the lender to agree and submit a form that states you've paid your loan and that the collateral assignment should no longer be in place.
Should I use a collateral assignment on my life insurance policy?
You could potentially benefit from a collateral assignment if you need a particular type of loan. People who need a small business loan or a Small Business Administration (SBA) loan often consider using a collateral assignment.
If you don't need a loan, or you have a loan you will easily be able to pay off, a collateral assignment on your life insurance policy will not be necessary.
As you search for life insurance companies that allow you to use a collateral assignment, be sure to get quotes from different companies and see how much a policy might cost.
The price for a life insurance policy will vary based on your age, your gender, and the type of life insurance policy you want. You may want to look for a digital life insurance company that offers online quotes.
When you shop, be sure to use our free quote tool below to find the best rates based on your unique needs.