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What Is An Assignee On A Life Insurance Policy?

Published: October 14, 2023

Learn the role of an assignee on a life insurance policy and how it can impact your finances. Discover what it takes to become a finance-savvy assignee.

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Table of Contents

Introduction, definition of assignee, role of assignee in a life insurance policy, rights and responsibilities of an assignee, process of assigning a life insurance policy, benefits of assigning a life insurance policy, considerations before assigning a life insurance policy, potential challenges and risks for assignees.

Life insurance is a crucial financial tool that provides protection and financial security to individuals and their loved ones in case of unexpected events. While the primary purpose of life insurance is to provide a death benefit to beneficiaries, policy owners also have the flexibility to assign or transfer their policy rights to another person or entity. This is where an assignee comes into play.

An assignee on a life insurance policy refers to the individual or entity who is designated to receive the policy benefits or be the recipient of any policy changes. Assigning a life insurance policy can be a strategic move for policyholders who want to transfer ownership rights or allocate the proceeds to a specific person or organization.

In this article, we will delve deeper into the role of an assignee in a life insurance policy, their rights and responsibilities, as well as the process of assigning a policy. We will also explore the benefits and considerations involved in assigning a life insurance policy, along with potential challenges and risks that assignees may encounter.

Understanding the concept of assignees in life insurance policies is essential for policyholders who may be considering transferring their policy rights or for beneficiaries who need to comprehend the implications of an assigned policy. Without further ado, let’s dive into the details of assignees on a life insurance policy.

An assignee on a life insurance policy is an individual or entity that is designated to receive the policy benefits or take over the ownership rights and responsibilities. When a policyholder assigns their life insurance policy, they transfer their rights to the assignee, who then becomes the new owner of the policy.

The assignee can be a spouse, child, relative, friend, or even a business entity such as a trust or corporation. The assignee can be named at the time the policy is initially taken out, or the policyholder can choose to assign the policy at a later date. In some cases, a policyholder may assign their policy to a lender or creditor as collateral for a loan.

It is important to note that the assignee is distinct from the beneficiary. The beneficiary is the person or entity who receives the death benefit proceeds upon the death of the insured. While the assignee assumes ownership of the policy, they may or may not be the same person as the beneficiary.

Assigning a life insurance policy can be a way for policyholders to ensure that the intended recipient receives the policy benefits or to transfer the financial responsibility and management of the policy to someone else.

Now that we have established the definition of an assignee in a life insurance policy, let’s explore their role in more detail.

The assignee plays a significant role in a life insurance policy once they have been designated as the new owner. Their responsibilities and authority may vary depending on the terms of the policy and the specific agreement between the policyholder and the assignee. Here are some key roles an assignee may have:

• Policy Ownership: As the assignee, they become the legal owner of the life insurance policy. This means they have the rights to manage and make decisions regarding the policy, subject to any limitations or conditions outlined in the assignment agreement.
• Premium Payments: The assignee is generally responsible for paying the premiums to keep the policy in force. They may choose to use their own funds or utilize the policy’s cash value, if available, to cover the premiums.
• Beneficiary Designation: The assignee may have the authority to change the beneficiary designation if permitted by the policy terms. This gives them the ability to redirect the policy’s death benefit to another individual or entity.
• Policy Modifications: Depending on the specific agreement, the assignee may have the power to make changes to the policy, such as increasing or decreasing the coverage amount, adjusting the policy term, or adding additional riders.
• Access to Policy Information: As the new policy owner, the assignee has the right to access and review the policy information, including the policy terms, conditions, and any associated documents.
• Claims Processing: In the event of the insured’s death, the assignee is responsible for initiating the claims process and ensuring that the death benefit proceeds are disbursed to the designated beneficiary.

It’s important to note that the specific roles and authority of the assignee can vary based on the terms of the assignment agreement. It is essential for both the policyholder and the assignee to have a clear understanding of their respective roles and responsibilities to avoid any confusion or disputes in the future.

Now that we have examined the role of an assignee in a life insurance policy, let’s explore the rights and responsibilities they have in more detail.

When an individual or entity becomes the assignee of a life insurance policy, they acquire certain rights and responsibilities associated with the policy. These rights and responsibilities can vary depending on the terms of the assignment agreement and the specific provisions of the policy. Let’s take a closer look at the rights and responsibilities of an assignee:

Rights of an Assignee:

• Ownership Rights: As the assignee, they have the right to the policy benefits and any cash value that has accumulated. They can make decisions regarding the policy, such as changing the beneficiary, modifying coverage, or accessing policy information.
• Premium Payments: The assignee has the right to receive premium payments from the policyholder, which they can use to keep the policy in force. They may also have the right to access the policy’s cash value, if available.
• Policy Modifications: Depending on the terms of the assignment agreement, the assignee may have the right to make changes to the policy, such as adjusting the coverage amount, policy term, or adding additional riders.
• Access to Policy Information: The assignee has the right to access and review the policy information, including the terms, conditions, and any associated documents. This allows them to stay informed about the policy’s provisions and make informed decisions.
• Claims Processing: In the event of the insured’s death, the assignee has the right to initiate the claims process and receive the death benefit proceeds. They are responsible for disbursing the proceeds to the designated beneficiary, if applicable.

Responsibilities of an Assignee:

• Premium Payments: As the assignee, they are responsible for making premium payments to keep the policy in force. This ensures that the policy remains active and the coverage continues.
• Policy Management: The assignee has the responsibility to manage and maintain the policy. This includes reviewing the policy regularly, staying informed about any changes in the terms and conditions, and making decisions that align with the policyholder’s intentions.
• Beneficiary Designation: If authorized by the assignment agreement, the assignee may have the responsibility to change the beneficiary designation if necessary. This involves ensuring that the intended recipient of the death benefit is correctly designated.
• Communication: The assignee has the responsibility to maintain open communication with the policyholder, beneficiaries, and any other parties involved. This helps in addressing any questions, concerns, or changes that may arise regarding the policy.

It’s important for both the assignee and the policyholder to have a clear understanding of these rights and responsibilities to ensure a smooth and effective management of the policy. Now that we have explored the rights and responsibilities of an assignee, let’s move on to understand the process of assigning a life insurance policy.

The process of assigning a life insurance policy involves transferring the ownership rights and control of the policy from the policyholder to the assignee. While the specific steps may vary based on the insurance company and policy terms, the general process typically includes the following:

• Review Policy Terms: The policyholder should carefully review the terms and conditions of their life insurance policy to understand any limitations or restrictions on assigning the policy.
• Choose an Assignee: The policyholder selects an individual or entity to be the assignee. This can be a family member, friend, trust, or even a business entity. It is essential to consider the long-term goals and intentions when choosing an assignee.
• Obtain Consent: The policyholder must obtain the consent of the proposed assignee to ensure they are willing to assume the responsibilities and obligations associated with the policy.
• Prepare Assignment Agreement: The policyholder and the assignee should work together to prepare an assignment agreement. This is a legal document that outlines the terms of the assignment, including the assignee’s rights, responsibilities, and any potential compensation or considerations involved.
• Notify the Insurance Company: The policyholder must contact their insurance company to inform them of the intention to assign the policy. The insurance company may require specific forms to be filled out, along with a copy of the assignment agreement.
• Insurance Company Approval: The insurance company will review the assignment request and the assignment agreement to ensure they comply with their policies and regulations. Once approved, they will update their records to reflect the new assignee.
• Update Beneficiary Designation: If the assignee is different from the original beneficiary, the policyholder may need to update the beneficiary designation to ensure that the intended recipient receives the death benefit.

It is crucial for both the policyholder and the assignee to consult with legal and financial professionals to ensure that the assignment process is conducted properly, adhering to any legal requirements and optimizing the financial outcomes for all parties involved.

Now that we have discussed the process of assigning a life insurance policy, let’s move on to explore the benefits of assigning a life insurance policy.

Assigning a life insurance policy can offer several benefits for both the policyholder and the assignee. Here are some key advantages of assigning a life insurance policy:

• Control and Flexibility: Assigning a life insurance policy allows the policyholder to have control over who will manage and benefit from the policy. It provides flexibility to designate a specific person or entity to take over the ownership rights and responsibilities.
• Estate Planning: Assigning a life insurance policy can be an effective estate planning strategy. It allows the policyholder to transfer assets outside of their estate, which may help in minimizing estate taxes and ensuring a smooth transfer of wealth to the intended recipients.
• Creditor Protection: By assigning a life insurance policy to a trust or business entity, the policy cash value and death benefit may be protected from potential creditors. This provides an added layer of financial security for the assignee and the intended beneficiaries.
• Financial Assistance: Assigning a life insurance policy can be beneficial in scenarios where the assignee needs financial assistance. For example, if the assignee is facing financial hardship or requires funds for a specific purpose, they may be able to access the policy’s cash value or even borrow against the policy.
• Charitable Giving: Assigning a life insurance policy to a charitable organization can be a meaningful way to support a favorite cause. It allows the policyholder to make a significant charitable contribution, and the assignee, in this case, would be responsible for managing the policy and ensuring that the proceeds benefit the designated charity.

It’s important to note that the benefits of assigning a life insurance policy can vary depending on the specific circumstances and goals of the policyholder. Therefore, it is advisable to consult with financial advisors, estate planning professionals, and insurance experts to assess the suitability of assigning a policy and to maximize the potential benefits.

Now that we have explored the benefits of assigning a life insurance policy, let’s move on to discuss some considerations before making the decision to assign a policy.

Before deciding to assign a life insurance policy, it is crucial to carefully consider a few key factors. These considerations will help ensure that the decision aligns with your financial goals and meets your specific needs. Here are some important points to ponder:

• Impact on Beneficiaries: Assigning a life insurance policy may have implications for the intended beneficiaries. It is essential to consider their needs and financial security before assigning the policy to someone else or an entity. Make sure to have open conversations with the beneficiaries to discuss any changes in the policy ownership and how it may impact them.
• Future Financial Needs: Assess your own future financial needs before assigning a life insurance policy. Life circumstances can change, and it is crucial to determine if the policy’s cash value or death benefit might be required for your own financial stability or long-term goals. Balancing immediate financial needs with the desire to assign the policy is important.
• Trustworthiness of the Assignee: Consider the trustworthiness and reliability of the proposed assignee. Assigning a life insurance policy involves transferring ownership rights and responsibilities, so it is crucial to choose someone who will effectively manage the policy and fulfill the agreed-upon obligations. Conduct thorough due diligence and consider seeking legal advice to ensure the assignee is the right choice.
• Tax Implications: Assigning a life insurance policy may have tax implications. Consult with tax professionals to understand any potential tax consequences of the assignment, such as gift tax or estate tax considerations. Proper planning and knowledge of tax laws will help mitigate any unexpected tax liabilities.
• Insurance Company Policy: Review the terms and conditions of your life insurance policy regarding assignments. Some policies may have restrictions or limitations on assigning a policy, and it’s important to understand these provisions. Contact your insurance company directly to clarify any concerns or questions related to the assignment process.
• Legal Considerations: Assigning a life insurance policy involves legal documentation and agreements. It is advisable to consult with legal professionals who specialize in insurance and estate planning to ensure that the assignment is conducted in compliance with applicable laws and meets your specific needs.

Considering these factors will help you make an informed decision about whether assigning a life insurance policy is the right choice for you. Assess your individual situation, speak with professionals, and review your long-term goals to determine if assigning the policy aligns with your overall financial plan.

Now that we have explored the considerations before assigning a life insurance policy, let’s discuss some potential challenges and risks for assignees.

While assigning a life insurance policy can have its benefits, there are also potential challenges and risks that assignees should be aware of. Understanding these risks will help you make informed decisions and take necessary precautions. Here are some potential challenges and risks for assignees:

• Financial Responsibility: As the assignee, you become responsible for paying the policy premiums to keep the coverage in force. Failure to pay the premiums can result in the policy lapsing, causing loss of coverage and potential loss of the policy’s cash value.
• Potential Conflict: Assigning a life insurance policy may lead to conflicts, especially if the policyholder has multiple beneficiaries or if the assigned policy conflicts with other estate planning arrangements. It is important to communicate and coordinate with all involved parties to minimize potential disputes.
• Changing Circumstances: Life circumstances can change, and the assigned policy may no longer align with the assignee’s needs or financial goals. Review the policy periodically to ensure it still meets your objectives. If necessary, consult with professionals to explore options for policy modifications or changes.
• Loss of Control: By assigning a policy, you relinquish control over certain aspects of the policy. The assignee may need to consult the policyholder or beneficiaries before making any changes or important decisions. This loss of control should be carefully considered before proceeding with the assignment.
• Insurance Company Approval: The insurance company typically has the final say in approving the assignment. They will review and confirm the assignment agreement to ensure compliance with their policies. If the assignment is not approved, it can impede the intended transfer of ownership.
• Tax Implications: Assigning a life insurance policy may have tax consequences for the assignee, such as potential income tax on the policy’s cash value or estate tax implications. Consult with tax professionals before finalizing the assignment to fully understand these potential tax implications.

It is crucial for assignees to carefully weigh these challenges and risks against the potential benefits before accepting the assignment of a life insurance policy. Be proactive in communicating with the policyholder and beneficiaries, stay informed about policy details, and seek professional guidance to navigate any potential challenges or risks.

Now that we have discussed the potential challenges and risks for assignees, let’s wrap up our article.

Assigning a life insurance policy can be a strategic financial move that offers flexibility and control over the policy’s ownership and benefits. By designating an assignee, individuals can ensure that the policy proceeds are directed to the intended recipient or utilize the expertise of an entity to manage the policy. However, before proceeding with an assignment, it is important to carefully consider various factors.

Understanding the role, rights, and responsibilities of an assignee is vital to ensure a smooth transition and effective management of the policy. The assignee assumes ownership of the policy, enjoying benefits such as decision-making authority and control over premiums. They also have responsibilities, including making premium payments, managing the policy, and initiating claims if the insured passes away.

The process of assigning a life insurance policy involves reviewing policy terms, choosing an assignee, obtaining consent, preparing an assignment agreement, and notifying the insurance company. It is crucial to review the policy specifics and consult legal and financial professionals to ensure compliance with regulations and optimize financial outcomes.

Assigning a life insurance policy offers numerous benefits, such as control, estate planning opportunities, creditor protection, and financial assistance. However, there are considerations to keep in mind, including the impact on beneficiaries, future financial needs, and tax implications.

Assignees may face potential challenges, such as financial responsibility, conflicts of interest, changing circumstances, loss of control, and insurance company approval. These risks should be carefully assessed, and open communication with the policyholder and beneficiaries is essential to minimize disputes and ensure a smooth transition.

In conclusion, assigning a life insurance policy requires thoughtful deliberation and consultation with professionals. Assessing your financial goals, considering the needs of beneficiaries, and understanding the potential risks will help make an informed decision. Assigning a life insurance policy can provide peace of mind, but careful consideration and planning are essential to ensure the assigned policy aligns with your long-term financial goals.

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What is an Assignee on a Life Insurance Policy?

When people take out a life insurance policy, it’s typically a step taken to prepare your loved ones for life after you pass away. What you may not know is that insurance policies are owned entities, which means they can be used as collateral for a loan or even be sold to offer money to you when you’re in a tough spot. There are also different methods available to do this, which we’ll explain in this article.

An individual who is taking out insurance will have many choices, such as whether you prefer to purchase whole life insurance or term life insurance . You also have choices when it comes to using your policy to leverage money that has already been invested in it.

Part of that is understanding the difference between a collateral assignment and an absolute assignment, so you can be sure to choose the solution that works best with your financial needs. The other part of it involves knowing the most important terms related to an assignment so that you go in with the knowledge you need.

Collateral Assignment of Life Insurance

If you have ever taken out a standard personal loan, a collateral assignment of life insurance has a lot of similarities to that process. The collateral for the loan is the life insurance policy and an organization or individual who pays out the loan is the assignee . They are also the ones who take over the policy on a conditional basis.

One important thing to know is that the assignee cannot resell the policy, make use of its cash value, or make changes to it. The assignee may only take the money for the death benefit if you, as the policyholder, default on the loan.

In the typical situation, if the collateral assignment is standing at your death, the assignee will let the insurance company know about the debt remaining, including interest. They will then be provided with that amount. If there are extra benefits, those will go to your beneficiary listed in the policy.

Absolute Assignment of Life Insurance

Another way to acquire a loan using life insurance is through an absolute assignment. This differs from collateral assignment since instead of using the loan as collateral, you are signing the full policy over to a person or entity. This person or business is considered the assignee, while the person who is selling the policy is the assignor.

The individual who buys the insurance policy gains ownership of the policy. This makes them responsible for the premiums and lets them make changes or choose different beneficiaries .

Each absolute assignment will have different terms based on the contract that is signed. For instance, it might explain that the assignor is transferring all title, rights, and interest in the policy to the assignee. Depending on the insurance company, an ownership clause may be used to make the transfer itself.

Understanding Policy Provisions

To ensure the assignee is protected, the insurance company needs to be notified that an assignment is in place. If the company doesn’t have notice of the assignment, the process might be paid to a beneficiary or a different assignee. This can be an issue since the insurance company will not pay the amount out again to another person.

Many life insurance policies come with policy provisions related to assignments. The most common include:

• The assignment is subject to all indebtedness related to the insurance company regarding the policy.
• The assignment only becomes binding when the original or duplicate is filed at the insurance company’s home office.
• The insurance provider has no responsibility for the sufficiency, effect, or the validity of the assignment.

Because of these provisions, it’s crucial to ensure that you make the assignment correctly. This applies whether it is an absolute assignment or a collateral assignment. The best thing you can do to avoid problems is to speak with an experienced insurance professional who can guide you to the best solution for your needs.

Comparing Assignments Among Life Insurance Policies

If you are in a situation where you need money and it needs to happen quickly, ask yourself whether your cash value in your life insurance policy could help you out. After you decide the answer to that, make sure that you consider the larger picture.

Going with an absolute assignment approach may be able to offer you a large sum of money at one time. However, you also need to realize that your family and loved ones will no longer have the protection that was provided by the policy. If this is a policy that you have been dutifully paying into for decades, losing all the value is something you need to decide whether you’re ready for.

On the other hand, a collateral assignment doesn’t whisk away the policy in its entirety. You can get control of your policy back as soon as you resolve your financial problem and pay back the loan. A collateral assignment is one of the most common ways to borrow from a life insurance policy to use the cash value on necessities.

Collateral assignments let you regain the benefits associated with a long-term life insurance policy at some point in the future. Since most people are familiar with paying off student loans, auto loans, and mortgages, this agreement is similar. Making all of the payments on time can help with both financial concerns in the present as well as creating long-term financial success.

Selecting Between Life Insurance Assignment Options

Every person is unique and will be in a different situation when considering a life insurance assignment. For one person, choosing a collateral assignment might be the right choice since the individual wants the life insurance benefits back after paying off the loan. Someone else may not be interested in those benefits and need a larger amount of money, which an absolute assignment can offer.

You’ll want to consider all your options before borrowing through your life insurance , whether that involves an assignment or another type of loan. Be aware of all of your options and make sure your choice is right for the present and your future financial situation.

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Secured loans are often used by individuals needing financial resources for any reason, whether it’s to fund a business, remodel a home or pay medical bills. One asset that may be used for a secured loan is life insurance. Although there are pros and cons to this type of financial transaction, it can be an excellent way to access needed funding. Bankrate’s insurance editorial team discusses what a collateral assignment of life insurance is and when it might—or might not—be the best loan option for you.

What is collateral assignment of life insurance?

A collateral assignment of life insurance is a method of securing a loan by using a life insurance policy as collateral . If you pass away before the loan is repaid, the lender can collect the outstanding loan balance from the death benefit of your life insurance policy . Any remaining funds from the death benefit would then be disbursed to the policy’s designated beneficiary(ies).

Why use life insurance as collateral?

Collateral assignment of life insurance may be a useful option if you want to access funds without placing any of your assets, such as a car or house, at risk. If you already have a life insurance policy, it can be a simple process to assign it as collateral. You may even be able to use your policy as collateral for more than one loan, which is called cross-collateralization, if there is enough value in the policy.

Collateral assignment may also be a credible choice if your credit rating is not high, which can make it difficult to find attractive loan terms. Since your lender can rely on your policy’s death benefit to pay off the loan if necessary, they are more likely to give you favorable terms despite a low credit score.

Pros and cons of using life insurance as collateral

If you are considering collateral assignment, here are some pros and cons of this type of financial arrangement.

• It may be an affordable option, especially if your life insurance premiums are less than your payments would be for an unsecured loan with a higher interest rate.
• You will not need to place personal property, such as your home, as collateral, which you would need to do if you take out a secured loan. Instead, if you pass away before the loan is repaid, lenders will be paid from the policy’s death benefit. Any remaining payout goes to your named beneficiaries.
• You may find lenders who are eager to work with you since life insurance is generally considered a good choice for collateral.
• The amount that your beneficiaries would have received will be reduced if you pass away before the loan is paid off since the lender has first rights to death benefits.
• You may not be able to successfully purchase life insurance if you are older or in poor health.
• If you are using a permanent form of life insurance as collateral, there may be an impact on your ability to use the policy's cash value during the life of the loan. If the loan balance and interest payments exceed the cash value, it can erode the policy's value over time.

What types of life insurance can I use as collateral for a loan?

You may use either of the main types of life insurance— term and permanent —for collateral assignment. If you are using term life insurance, you will need a policy with a term length that is at least as long as the term of the loan. In other words, if you have 20 years to pay off the loan, the term insurance you need must have a term of at least 20 years.

Subcategories of permanent life insurance, such as whole life , universal life and variable life, may also be used. Depending on lender requirements, you may be able to use an existing policy or could purchase a new one for the loan. A permanent policy with cash value may be especially appealing to a lender, considering the added benefit of the cash reserves they could access if necessary.

How do I take out a loan using a collateral assignment of life insurance?

If you already have enough life insurance to use for collateral assignment, your next step is to find a lender who is willing to work with you. If you don’t yet have life insurance, or you don’t have enough, consider the amount of coverage you need and apply for a policy . You may need to undergo a medical exam and fill out an application .

Once your policy has been approved, ask your insurance company or agent for a collateral assignment form, which you will complete and submit with your loan application papers. The form names your lender as an assignee of the policy—meaning that they have a stake in its benefits for as long as the loan exists. You will also name beneficiaries or a single beneficiary, who will receive whatever is left over from the death benefits after the loan is repaid.

Note that you will need to stay current on your life insurance premium payments while the collateral assignment is active. This will be stated in the loan agreement, and failure to do so could have serious repercussions.

Alternatives to life insurance as collateral

If you are considering a collateral assignment of life insurance, there are a few alternative funding options that might be worth exploring. Since many factors determine each option, working with a financial advisor may be the best way to find the ideal solution for your situation.

Unsecured loan

Depending on your situation, an unsecured loan may be more affordable than a secured loan with life insurance as collateral. This is more likely to be the case if you have good enough credit to qualify for a low-interest rate without having to offer any type of collateral. There are many different types of unsecured loans, including credit cards and personal loans.

Secured loan

In addition to life insurance, there are other items you can use as collateral for a secured loan . Your home, a car or a boat, for example, could be used if you have enough equity in them. Typically, secured loans are easier to qualify for than unsecured, since they are not as risky for the lender, and you are likely to find a lower interest rate than you would with an unsecured loan. The flip side, of course, is that if you default on the loan, the lender can take the asset that you used to secure it and sell it to recoup their losses.

Life insurance loan

Some permanent life insurance policies accumulate cash value over time that you can use in different ways. If you have such a policy, you may be able to partially withdraw the cash value or take a loan against your cash value. However, there are implications to using the cash value in your life insurance policy, so be sure to discuss this solution with a life insurance agent or your financial advisor before making a decision.

Home equity line of credit (HELOC)

A home equity line of credit (HELOC) is a more flexible way to access funds than a standard secured loan. While HELOCs carry the downside of risking your home as collateral, you retain more control over the amount you borrow. Instead of receiving one lump sum, you will have access to a line of credit that you can withdraw from as needed. You will only have to pay interest on the actual amount borrowed.

Frequently asked questions

What is the best life insurance company, what type of loans are collateral assignments usually associated with, what are other common forms of collateral, what are the two types of life insurance assignments, related articles.

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Understanding Life Insurance Assignments: Your Complete Guide

A life insurance assignment allows you to transfer the rights of your policy, either temporarily or permanently.

Learn how collateral and absolute assignments can be used for loan collateral, estate planning, and other financial purposes.

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What is a collateral assignment.

Collateral assignments are used to secure a lender’s financial interest in your policy in exchange for lending you money.

If you die, the collateral assignment allows the lender to collect your policy’s death benefit up to the amount of the outstanding loan balance.

How Do Collateral Assignments Work?

A typical scenario involves taking out a business loan .

The lender may require a life insurance policy as collateral.

The type of life insurance policy used, whether a term, whole life, or universal life doesn’t matter.

The insurance policy will pay off the balance if you die while the loan is outstanding.

One of the most common uses for collateral assignments is with SBA loans , especially if you do not have other assets to post as collateral.

The collateral assignment applies to the entire policy, including any life insurance rider benefits that may be included.

The Collateral Assignment Process: A Step-by-Step Guide

The process is similar whether you are adding the assignment to an existing policy or buying new coverage.

There are two parties to a collateral assignment.

• Assignor – Is the owner of the life insurance policy
• Assignee – Is the lender

Life insurance companies have standardized forms used for this purpose.

• The owner completes the form and sends it to the lender for review and signature.
• Once completed by the lender, the form is sent to the insurance company.
• The insurance company records the assignment and confirms to the owner and lender that it is complete.

This may all seem confusing if you haven’t used an assignment before, but the reality is that most life insurers make it pretty easy to complete.

Releasing a Collateral Assignment

When you pay off your loan, you have the right to have the collateral assignment released.

It’s a simple process :

• The policy owner completes the form and sends it to the lender.
• The lender signs off on the release. Many companies require a notary as a witness. The lender may return the form to the owner or the insurance company.
• Once completed and returned to the insurance company, the release is recorded, and all parties are notified.

Companies typically complete this process in about a week, and it’s a good idea to confirm everything with the home office to avoid potential issues.

Your agent can help with this.

What Happens to a Collateral Assignment if You Die?

How do collateral assignments work when you die?

Your beneficiary will file a death claim with the life insurer at some point.

Collateral Assignment Tip # 1

If your beneficiary is a loved one, it’s a good idea to let them know that your policy has a collateral assignment so they are not surprised when they file the claim.

Here’s an example of how a death claim with a collateral assignment works:

• Policy Face Amount = $5,000,000
• Beneficiary = Your Spouse
• Original Bank Loan = $200,000
• Outstanding Loan Balance at Death = $100,000

What happens next?

• Your beneficiary will file the death claim with the life insurance company.
• The life insurance company will review the claim and see a collateral assignment attached to your policy.
• The life insurer contacts the lender for an updated payoff figure.
• Payoff amounts are sent directly to the lender.
• Your beneficiary receives the balance of the policy death benefit .

For the above example, your lender would receive $100,000, and your beneficiary would receive the remaining $4,900,000.

Collateral Assignment Tip # 2

NEVER name your lender directly as a beneficiary. If you do, the lender will receive the entire death benefit, and your intended beneficiary will have to go through the lender to receive their share.

Collateral Assignments and Health Issues

While lenders may want a life insurance policy as collateral, obtaining life insurance can sometimes be difficult if the insured has substantial health issues .

If you have an existing life insurance policy in effect, you can use that for the assignment.

Another option that exists in some states is contingent coverage.

Contingent coverage is a one-year policy that you can renew.

The policy will exclude death from the known health issue but provide coverage for new health issues that develop or from accidental deaths .

Many lenders accept this coverage when it’s the only option available. And we’ve also seen lenders waive the collateral assignment requirement at times.

What is an Absolute Assignment?

An absolute assignment is a change of ownership of the policy.

When you want to permanently relinquish your rights to the life insurance policy, an absolute assignment is used.

Examples where absolute assignments are used include:

Life Insurance Settlements

1035 exchange, gifting life insurance to charities, irrevocable life insurance trusts (ilit), business insurance planning.

With this transaction, you are selling your life insurance policy to a third party.

If it is a term policy, you would convert a term policy to permanent insurance before it is sold. In some cases, a company will buy the term policy.

Another example may involve admitting seniors to a nursing home, where the nursing home may take over the policy you have.

A 1035 exchange is a tax-free transfer of cash value from universal life or whole life policy to another similar policy.

You can use absolute assignments to transfer your policy to your favorite charity.

You use absolute assignments to transfer your policy to an ILIT permanently.

An example would be a survivorship policy you and your spouse own that you are transferring to the trust.

Many other potential issues may arise with transfers to an ILIT that are beyond the scope of this article.

If you purchase key person life insurance on an employee, absolute assignments transfer ownership to the employee.

Many times, this happens if the employee leaves the company or retires.

You may have a policy permanently assigned to a nursing home or assisted living facility to help with long-term care expenses.

How Do Absolute Assignments Work?

Life insurance companies have forms used for Absolute Assignments.

Absolute assignment forms require:

• Current owner name, address, and tax ID information.
• New owner name, address, and tax ID information.
• Relationship to the proposed insured.
• Spousal consent in some states and situations.

The completed forms are submitted to the insurance company, recorded, and confirmations are sent to all parties.

Frequently Asked Questions About Life Insurance Assignments

You may have questions about your life insurance assignment and how it works.

The following are general guidelines, as each situation is uniquely different.

Can the collateral assignment change the beneficiary?

No, the collateral assignment does not change the beneficiary.

The life insurance assignment gives the lender the right to receive proceeds equal to their outstanding loan balance.

Can a business be a beneficiary in a collateral assignment of life insurance?

A business can be the beneficiary of a life insurance policy that is collaterally assigned.

Final Words

Life insurance assignments are common for absolute and collateral assignments.

What is most important is that you understand what is involved with this process.

That’s where we’ll help you make the best decision for your life insurance.

There is never any pressure or obligation with our life insurance service.

Please take a few minutes to submit your quote request today. Thank you.

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Assignee: What it is, How it Works, Types

Michelle P. Scott is a New York attorney with extensive experience in tax, corporate, financial, and nonprofit law, and public policy. As General Counsel, private practitioner, and Congressional counsel, she has advised financial institutions, businesses, charities, individuals, and public officials, and written and lectured extensively.

Ariel Courage is an experienced editor, researcher, and former fact-checker. She has performed editing and fact-checking work for several leading finance publications, including The Motley Fool and Passport to Wall Street.

What Is an Assignee?

An assignee is a person, company, or entity who receives the transfer of property, title, or rights from another according to the terms of a contract. The assignee receives the transfer from the assignor. For example, an assignee may receive the title to a piece of real estate from an assignor.

Key Takeaways

• An assignee is a person, company, or entity who receives the transfer of property, title, or rights from a contract.
• The assignee receives the transfer from the assignor.
• An assignee may be the recipient of an assignment, a liability, or appointed to act in the stead of another person or entity.
• The assignee typically will hold the rights of power of attorney only for a specified time or for particular circumstances.
• Once the time has expired or the circumstances have been resolved, the assignee would automatically relinquish those rights.
• Not all assignment contracts are required to be made in writing, but they often are.

How an Assignee Works

An assignee may be the recipient of an assignment, a liability, or appointed to act in the stead of another person or entity. For example, an executor of an estate may be appointed through a will left by a decedent.

Types of Assignees

Assignee in real estate.

An assignee is the recipient of a title when a deed is signed to confer ownership of property in a transaction. A tenant might choose to transfer their property rights to an assignee who would assume duties for paying rent and tending to the property. There may be limits to the rights and liabilities that are granted to an assignee based on the nature of the transfer or assignment of rights.

For example, an assignee might take on the property rights from a tenant who vacated a rental property, but the tenant may still be liable if the assignee does not make rent payments on time. An assignee who takes title and ownership of real estate might not have certain rights to use the property any way they wish. There may be rights of ingress and egress that must be negotiated with adjacent property owners who hold surrounding land parcels. The assignee could receive certain rights that run with the land when they are granted the title.

Assignment by Power of Attorney

Power of attorney may be assigned to a person to tend to certain affairs for a person while they are out of the country or not capable of taking action for themselves. The assignment of power of attorney can grant broad rights or be limited in scope by the terms set by the assignor. The rights could be for the specific handling of a contract or business deal that the assignor cannot be present for.

The assignee typically will hold the rights of power of attorney only for a specified time or particular circumstances. Once the time has expired or the circumstances have been resolved, the assignee would automatically relinquish those rights. It is possible that the terms of power of attorney might allow an assignee to act in their self-interest rather than for the interests of the assignor.

Assignee in an Insurance Policy

In the context of a life insurance policy, interest in a policy can be transferred from the policyholder to a lender or relative by assignment of the policy. In this case, the policyholder is the assignor and the person in whose favor the policy has been assigned is called the assignee.

Assignee in a Contract

When one party to a contract—the assignor—hands off the contract's obligations and benefits to a different party—the assignee—this is known as an assignment of contract. In this situation, the assignee assumes all the rights and responsibilities of the contract from the assignor. All, or a portion, of a letter of credit can be assigned to a third party to pay vendors and suppliers.

Assignee in a Loan

An assignee is a person or a company that buys your loan. For example, an auto dealer that extends credit to individuals may sell their loans to a bank. In this case, the bank is the assignee and the auto dealer is the assignor. If your loan has been sold, you owe money to whoever owns your loan. In the event that responsible parties fail to meet their loan obligations, the assignee has a lien on the vehicle and can repossess it.

Not all assignment contracts are required to be made in writing, but they often are. Assignment contracts may also need to be notarized and witnessed in order to be valid. The assignment of property and collateral for loans must be in writing. Note that not all rights, contracts, or other property are assignable; many contracts, particularly real estate leases and personal service agreements, explicitly prohibit assignment. 

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What Is A Collateral Assignment Of Life Insurance?

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A collateral assignment is sometimes a necessity if you’re applying for larger financing amounts such as a mortgage or business loan.

But what is a collateral assignment and how do you go about getting it on your life insurance policy? 

In this article, we’ll cover what collateral assignment is, how you can add it to your life insurance, and what alternatives there are out there. 

What Is Collateral Assignment? 

A collateral assignment is a process by which a person uses their life insurance policy as collateral for a secured loan.

In simple terms, collateral assignment is reassigning priorities for who gets paid the death benefit of your life insurance policy.

What Is a death benefit?

A death benefit or face value of a life insurance contract is the amount of money that your beneficiaries will receive from your policy when you die.

Once you apply for collateral assignment and it’s approved, your specified debtor (the loan provider) will be paid first and then your beneficiaries will receive what is left over in your life insurance policy.

This is different from using your cash value to loan money as you are taking out a loan from another financial institution and using your policy as a guarantee that you’ll cover any debt when you die. 

For example, let’s say you want to take out a secured loan from your local bank and want to use your life insurance policy as a collateral assignment.

In this situation, you’d still have to pay back any debt you have with interest during the loan period. 

However, the life insurance policy would be used if the borrower dies and there was an outstanding loan balance remaining. 

Secured Loans vs. Unsecured Loans

Secured loans are debts that are backed by assets that a lender can claim if the debt isn’t repaid. These types of loans often offer better interest rates and more generous payment terms.

Unsecured loans are debts that don’t have collateral. These types of loans are more expensive to repay and considered riskier than secured loans.

Source: Pexels

How Does Applying for Collateral Assignment Work?

The process for getting collateral assignments for life insurance is the same as when you apply for new life insurance coverage. 

All you’ll be doing is indicating to your life insurance provider that your lender will be given priority for the amount of money you have borrowed through them.

There is an:

Application process.

Underwriting process.

Offer that you’ll receive.

You’ll be required to name beneficiaries as well as indicate ownership of the life insurance policy in the collateral assignment form which will be provided by your life insurance company.

This is because you’re changing the terms of your payout and your life insurance provider will need to follow these instructions once you die.

NB Some insurance companies don’t offer collateral assignment on new loans and generally only provide this feature to an existing life insurance policy.

You should check beforehand to see what will be required to apply for a collateral assignment. If you need help finding plans that offer this, send an email to a licensed insurance agent today.

Once you’ve assigned a new collateral assignee to your life insurance policy, they will be entitled to lay a claim on your death benefit for any debt you have with them.

For example, let’s say you take out a collateral assignment life insurance policy worth $200,000 for a loan of $75,000 over 7 years at an interest rate of 18%.

If you die after five years, based on these figures, you’ll still have $41,231.02 owed on your loan.

Your $200,000 life insurance plan will be used to cover this and your beneficiaries will receive the remaining $158 768.98 from your life insurance policy.

Your lender is only allowed to take the amount outstanding on the debt owed and cannot take more. 

What about Missed Payments and Cash Value Life Insurance?

If you have a permanent life policy with a cash value account, sometimes called cash value life insurance, your lender will have access to it to cover missed payments on your loan.

For example, let’s say you miss a payment on your loan and have a collateral assignment. Your lender will be able to access your cash value account and withdraw that month’s payment to cover your debt.

Who Can You Add as a Collateral Assignee?

You can add any person or institution as a collateral assignee to your life insurance policy if you owe them money.

This can include banks, lenders, private individuals, businesses, or credit card companies. 

The most common collateral assignments are for business loans and mortgages. This is because they are loans for high amounts that are paid off over several years. 

In fact, some banks and financial lenders may require that you add them as collateral assignees when you apply for any of the financing options mentioned below.

Common Collateral Assignees Include:

💵 Bank loans

💳 Credit cards

🏡 Mortgages

💼 Business loans

What Do I Do If I’ve Paid Off My Debt?

If you’ve managed to pay off your debt - firstly, congratulations! Secondly, you’ll want to notify your life insurance company that you’ll be changing your collateral assignments on your life policy.

While there is no legal claim that a company can make to debts that aren’t owed anymore, there may be a hold up in paying out the death benefit to your beneficiaries and other collateral assignees.

Life insurance companies will have to figure out who must be paid first, according to the order stated in your collateral assignment terms.

In general, life insurance policies will settle claims within 24 hours of being notified of a policyholder’s death.

The process can be delayed if you do not release your collateral assignees from your life insurance contract. 

Tips to Make Sure Your Life Policy Is Paid Out Quickly

Here are some tips if you want your beneficiary claims to be handled as fast as possible:

1) Keep a copy of your life insurance policy and policy number in a safe place or with your lawyer, financial advisor, or estate planner.

2) Speak to your beneficiaries about your policies and give them the contact details of the relevant life insurance company.

3) Make sure your life insurance contract is updated to reflect your latest list of beneficiaries.

4) Make sure you have your beneficiaries' details listed in the contract or with your lawyer.

The Benefits of Using Collateral Assignment of Life Insurance

While adding a collateral assignment to your current life insurance policy may require an application, paperwork, and time, there are benefits:

Many lenders like it: Banks and financial institutions sometimes prefer it when applicants use their life insurance policy as collateral for a loan. This is because they know that their debt will be serviced long-term by your insurance company which makes their loan to you a lower risk.

Your private property won’t be jeopardized: The last thing you want when you go into debt is to put your personal items, such as your car, investments, or home on the line as collateral. Using collateral assignment is an alternative to this and can protect you in the event that you can’t service your debt.

It can be affordable for some people: If you’re in good health and young, you may be paying affordable rates for permanent life cover. In situations like this, it can make sense to use your life cover as collateral for debts you’ve incurred.

What Are Some Alternatives to Collateral Assignment?

Term Life Insurance: Getting a term life insurance contract to cover specific debts is one way of ensuring your estate and family are protected when you die.

There are multiple types of term life insurance plans and they are more affordable than permanent life insurance. This makes options like level term life insurance and decreasing term life insurance ideal for different types of debts you may have over your lifetime.

What Is Term Life?

Term life is a temporary life coverage option that lasts for a specific period of time. It is different from permanent life insurance which lasts until you die or you stop paying premiums.

Term life contracts are typically between 5 to 20 years, however, you can get renewable term life plans and even a forty-year term life plan .

Borrow from your life insurance: If you have a permanent life insurance policy, such as universal, whole, or indexed life cover, you can borrow money from your cash value account. 

However, keep in mind that you’ll be required to pay interest on any amount that you borrow and any amount of debt incurred will be deducted from your policy’s death benefit when you die.

What Is Cash Value?

Cash value is a feature of permanent life insurance plans that policyholders can contribute additional money toward while they have a policy in force.

This money is set aside in a cash value account which is tax-deferred and can be used in a number of ways.

In some cases, if your policy allows it, you can end your contract and get the cash surrender value of it. This amount is usually much less than the value of your total life insurance contract. 

Our Verdict on Collateral Assignment

Many banks, lenders, and financial institutions want long-term guarantees that you’ll be able to service your debt if anything happens to you.

In some situations, getting collateral assignments on your life insurance to cover these debts is a good option for people who are trying to access finance from these institutions. 

However, there is a risk that your death benefit payout may be delayed for your beneficiaries if you don’t keep your different collateral assignees up to date.

If you already have a life insurance policy, you should contact your provider to find out what the process is and what you’ll need to do to change the collateral assignees on your policy.

If you don’t have a policy yet, our advice is to look at all of your options before you decide to take a permanent life insurance contract with a collateral assignment.

There are alternatives out there that are more affordable if you’re looking to protect your family and estate from debt.

Term life is one such option that is adaptable to your life and easy to get. 

For example, a decreasing term life insurance policy might be the right choice for someone who has recently bought a home and wants to cover their mortgage while they pay it back.

Another option is final expense insurance, which is a permanent life policy for smaller amounts, usually under $50,000.

With final expense insurance, your beneficiaries can pay for anything they want, including any debts you may have had in your life.

The process for applying is simple and you won't have to go through a medical exam or intensive underwriting as you would with traditional permanent life insurance. 

If you need any assistance with finding, comparing, or learning about the different life insurance options to cover your debts, speak to one of our expert advisors today at 1-888-912-2132 or [email protected] .

Where Can I Learn More about Life Insurance?

If you’re looking to learn more about life insurance, different kinds of coverage, or costs, visit our life insurance hub to find our latest articles.

We do the research so that you don’t have to and our articles cover complicated topics like what is a cash value account, what is key person insurance, or how long life insurance takes to pay out a death benefit.  

If you need help with quotes, try out a life insurance quote finder or reach out to us via email at [email protected] to get in touch with a licensed life insurance agent for your state.

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What Is Collateral Assignment (of a Life Insurance Policy)?

Meredith Mangan is a senior editor for The Balance, focusing on insurance product reviews. She brings to the job 15 years of experience in finance, media, and financial markets. Prior to her editing career, Meredith was a licensed financial advisor and a licensed insurance agent in accident and health, variable, and life contracts. Meredith also spent five years as the managing editor for Money Crashers.

Definition and Examples of Collateral Assignment

How collateral assignment works, alternatives to collateral assignment.

Kilito Chan / Getty Images

If you assign your life insurance contract as collateral for a loan, you give the lender the right to collect from the policy’s cash value or death benefit in two circumstances. One is if you stop making payments; the other is if you die before the loan is repaid. Securing a loan with life insurance reduces the lender’s risk, which improves your chances of qualifying for the loan.

Before moving forward with a collateral assignment, learn how the process works, how it impacts your policy, and possible alternatives.

Collateral assignment is the practice of using a life insurance policy as collateral for a loan . Collateral is any asset that your lender can take if you default on the loan.

For example, you might apply for a $25,000 loan to start a business. But your lender is unwilling to approve the loan without sufficient collateral. If you have a permanent life insurance policy with a cash value of $40,000 and a death benefit of $300,000, you could use that life insurance policy to collateralize the loan. Via collateral assignment of your policy, you authorize the insurance company to give the lender the amount you owe if you’re unable to keep up with payments (or if you die before repaying the loan).

Lenders have two ways to collect under a collateral assignment arrangement:

• If you die, the lender gets a portion of the death benefit—up to your remaining loan balance.
• With permanent insurance policies, the lender can surrender your life insurance policy in order to access the cash value if you stop making payments.

Lenders are only entitled to the amount you owe, and are not generally named as beneficiaries on the policy. If your cash value or the death benefit exceeds your outstanding loan balance, the remaining money belongs to you or your beneficiaries.

Whenever lenders approve a loan, they can’t be certain that you’ll repay. Your credit history is an indicator, but sometimes lenders want additional security. Plus, surprises happen, and even those with the strongest credit profiles can die unexpectedly.

Assigning a life insurance policy as collateral gives lenders yet another way to secure their interests and can make approval easier for borrowers.

Types of Life Insurance Collateral

Life insurance falls into two broad categories: permanent insurance and term insurance . You can use both types of insurance for a collateral assignment, but lenders may prefer that you use permanent insurance.

• Permanent insurance : Permanent insurance, such as universal and whole life insurance, is lifelong insurance coverage that contains a cash value. If you default on the loan, lenders can surrender your policy and use that cash value to pay down the balance. If you die, the lender has a right to the death benefit, up to the amount you still owe.
• Term insurance : Term insurance provides a death benefit, but coverage is limited to a certain number of years (20 or 30, for example). Since there’s no cash value in these policies, they only protect your lender if you die before the debt is repaid. The duration of a term policy used as collateral needs to be at least as long as your loan term.

A Note on Annuities

You may also be able to use an annuity as collateral for a bank loan. The process is similar to using a life insurance policy, but there is one key difference to be aware of. Any amount assigned as collateral in an annuity is treated as a distribution for tax purposes. In other words, the amount assigned will be taxed as income up to the amount of any gain in the contract, and may be subject to an additional 10% tax if you’re under 59 ½.

A collateral assignment is similar to a lien on your home . Somebody else has a financial interest in your property, but you keep ownership of it.

The Process

To use life insurance as collateral, the lender must be willing to accept a collateral assignment. When that’s the case, the policy owner, or “assignor,” submits a form to the insurance company to establish the arrangement. That form includes information about the lender, or “assignee,” and details about the lender’s and borrower’s rights.

Policy owners generally have control over policies. They may cancel or surrender coverage, change beneficiaries, or assign the contract as collateral. But if the policy has an irrevocable beneficiary, that beneficiary will need to approve any collateral assignment.

State laws typically require you to notify the insurer that you intend to pledge your insurance policy as collateral, and you must do so in writing. In practice, most insurers have specific forms that detail the terms of your assignment.

Some lenders might require you to get a new policy to secure a loan, but others allow you to add a collateral assignment to an existing policy. After submitting your form, it can take 24 to 48 hours for the assignment to go into effect.

Lenders Get Paid First

If you die and the policy pays a death benefit , the lender receives the amount you owe first. Your beneficiaries get any remaining funds once the lender is paid. In other words, your lender takes priority over your beneficiaries when you use this strategy. Be sure to consider the impact on your beneficiaries before you complete a collateral assignment.

After you repay your loan, your lender does not have any right to your life insurance policy, and you can request that the lender release the assignment. Your life insurance company should have a form for that. However, if a lender pays premiums to keep your policy in force, the lender may add those premium payments (plus interest) to your total debt—and collect that extra money.

There may be several other ways for you to get approved for a loan—with or without life insurance:

• Surrender a policy : If you have a cash value life insurance policy that you no longer need, you could potentially surrender the policy and use the cash value. Doing so might prevent the need to borrow, or you might borrow substantially less. However, surrendering a policy ends your coverage, meaning your beneficiaries will not get a death benefit. Also, you’ll likely owe taxes on any gains.
• Borrow from your policy : You may be able to borrow against the cash value in your permanent life insurance policy to get the funds you need. This approach could eliminate the need to work with a traditional lender, and creditworthiness would not be an issue. But borrowing can be risky, as any unpaid loan balance reduces the amount your beneficiaries receive. Plus, over time, deductions for the cost of insurance and compounding loan interest may negate your cash value and the policy could lapse, so it’s critical to monitor.
• Consider other solutions : You may have other options unrelated to a life insurance policy. For example, you could use the equity in your home as collateral for a loan, but you could lose your home in foreclosure if you can’t make the payments. A co-signer could also help you qualify, although the co-signer takes a significant risk by guaranteeing your loan.

Key Takeaways

• Life insurance can help you get approved for a loan when you use a collateral assignment.
• If you die, your lender receives the amount you owe, and your beneficiaries get any remaining death benefit.
• With permanent insurance, your lender can cash out your policy to pay down your loan balance.
• An annuity can be used as collateral for a loan but may not be a good idea because of tax consequences.
• Other strategies can help you get approved without putting your life insurance coverage at risk.

NYSBA. " Life Insurance and Annuity Contracts Within and Without Tax Qualified Retirement Plans and Life Insurance Trusts ." Accessed April 12, 2021.

IRS. " Publication 575 (2020), Pension and Annuity Income ." Accessed April 12, 2021.

Practical Law. " Security Interests: Life Insurance Policies ." Accessed April 12, 2021.

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What Is Collateral Assignment of Life Insurance?

Collateral assignment of life insurance designates a lender as the assignee of a policy, granting them the right to part or all of the death benefit until the loan is repaid.

Nathan Paulus

Director of Content Marketing, MoneyGeek

Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy. Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.

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Content Editor

Casie McCoskey is a professional editor passionate about providing people with accessible information on personal finance. Before MoneyGeek, she worked in the legal field, drafting and editing briefs and motions.

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Updated: September 20, 2024

• How It Works
• Overview of Application Process

Pros and Cons

• Impact on Beneficiaries
• Alternatives

Related Content

Advertising & Editorial Disclosure

Collateral assignment of life insurance is an arrangement where a policyholder uses the face value of their life insurance policy, which can be a term or permanent life insurance policy, as collateral to secure a loan. If the policyholder dies before they pay off the loan, the lender is prioritized to receive a portion of the death benefit equivalent to the outstanding loan balance. The remaining benefit then goes to the policy's beneficiaries. This agreement ensures that life insurance collateral assignment acts as a safety net for both the lender and the beneficiaries.

• Collateral assignment involves using a life insurance policy as security for a loan, where the lender has a claim on the death benefit if the borrower defaults or passes away before repaying the loan.
• The lender receives priority over the death benefit, which means they are paid first from the policy's payout before any beneficiaries if the loan remains unpaid.
• Various life insurance policies, including term, whole and universal, can be used for collateral assignment, depending on the insurance company's policies and the policy's value.
• If a life insurance policy lapses or is canceled during a collateral assignment, it can breach the loan agreement, potentially resulting in immediate repayment demands.

How Collateral Assignment of Life Insurance Works

The collateral assignment allows you to use your life insurance policy as security for a loan. The process involves legally designating your policy as collateral, which means if you pass away before fully repaying the loan, the lender can claim the death benefit to cover the remaining balance. You start by choosing either a term policy or whole life insurance and then complete a collateral assignment agreement. This agreement is legally binding and sets the terms for the lender to access the death benefit .

For your beneficiaries, the assignment of your life insurance policy as collateral could reduce the death benefit they receive. If you die with an outstanding loan balance, the lender is paid first from the policy's proceeds. Any remaining amount goes to your beneficiaries only after the loan is settled.

For example, a policyholder with a $500,000 policy uses their life insurance as collateral for a $200,000 loan. If the policyholder dies before settling the loan, the lender will receive $200,000 from the policy's death benefit. Meanwhile, the remaining $300,000 gets disbursed to the policy's beneficiaries.

Roles of the Policyholder, Lender and Insurance Provider

Role of the Policyholder

• Ensure consistent premium payments to keep the policy active and in force.
• Inform the lender of any policy changes, such as lapses or surrenders.
• Understand that active management upholds the collateral agreement's integrity.

Role of the Lender

• Accept the life insurance policy as collateral.
• Right to recover owed amounts from the policy's death benefit if the policyholder dies before loan repayment.
• Priority claim on the death benefit, with remaining funds disbursed to beneficiaries.
• Responsible for releasing the assignment after full loan repayment.

Role of the Insurance Provider

• Approve or reject the collateral assignment of the policy.
• Evaluate and ensure compliance with policy terms.
• Officially record the assignment as part of the policy.

Applying for Collateral Assignment

Applying for collateral assignment is a process moderated by your life insurance company designed to secure loans using your life insurance policy as collateral. It involves a series of steps:

Obtain a Collateral Assignment Form

Request a collateral assignment form from your life insurance provider. This form is vital for designating the lender as a collateral beneficiary for the loan amount. Ensure you obtain the correct form, as forms vary based on policy type and insurer.

Fill Out the Form Correctly

Complete the form with accurate details, including policy number, loan amount and lender information. Pay close attention to all sections to avoid errors that could delay or invalidate the assignment. Incomplete or incorrect information can lead to processing delays or rejection.

Sign the Paperwork

Ensure both the policyholder and lender sign the form, confirming the agreement. This dual signature legally binds both parties to the terms of the collateral assignment. Any discrepancy in signatures may question the form's validity.

Submit the Completed Form

Submit the signed form back to the insurance company for processing. Consider using a traceable delivery method for submission to confirm receipt. Delays in submission can impact the timeline of the loan approval process.

Await Approval or Rejection From the Insurance Company

Wait for the insurer to review and approve or reject the collateral assignment. The insurer may request additional information or clarification, which can extend the approval timeline.

Receive a Letter of Acknowledgment

You and your lender will receive a letter of acknowledgment from the insurer if your collateral assignment application is approved.

Obtaining Required Documentation

The required documentation for collateral assignment of life insurance is straightforward. Typically, you'll need to provide two main types of documents for the assignment of a life insurance policy as collateral:

• Collateral Assignment Form: This form is critical because it officially transfers a portion of your life insurance policy benefits to the lender as collateral. It demonstrates to the lender that you have taken the steps to secure your loan against your life insurance policy.
• Original Life Insurance Policy and Proof of Loan: Lenders may require your original life insurance policy to ensure it is valid and enforceable. Proof of the loan agreement or obligation, such as a mortgage note or other loan document, is also commonly required. This establishes the legitimacy of your loan and substantiates the life insurance collateral assignment.

If you need more clarification about documentation requirements, contact your lender to confirm the necessary details to avoid process delays.

Pros and Cons of Collateral Assignment

Using life insurance as collateral can offer a range of benefits and potential drawbacks. Collateral assignment of a policy allows you to secure loans and is often safer than using physical assets as collateral. However, you should also note the inherent risks, primarily that the lender retains the first right to your policy’s death benefit upon your death.

• Lower interest rates on loans.
• Allows you to use the policy and not physical assets as collateral.
• The cash value of your insurance policy continues to grow.
• The lender has the first right to the death benefit.
• Failure to repay the loan can reduce or even eliminate the death benefit.
• Any lapse or cancellation of the policy may lead to violating the loan terms.

Impact of Collateral Assignment on Beneficiaries

While the collateral assignment of life insurance has its benefits, it’s important to remember that it can impact the amount your beneficiaries receive. If you pass away with an outstanding balance on your loan:

Your Lender Will Be Paid First

In the collateral assignment arrangement, the lender is designated as the collateral beneficiary holding the primary claim to the death benefit for the outstanding loan amount. This means if you pass away before fully repaying the loan, the lender is entitled to receive payment from the death benefit first. The amount collected by the lender is limited to the remaining loan balance.

Any Remaining Death Benefit Will Be Disbursed to Your Beneficiaries

After the lender's claim is satisfied, the remaining death benefit is disbursed to your policy’s designated beneficiaries. The amount they receive depends on the loan balance at the time of your death. If the loan balance is substantial, your beneficiaries will receive significantly less than the policy's total death benefit.

This structure underscores the importance of carefully considering life insurance collateral loans and their impact on future financial planning. Policyholders using life insurance as collateral need to understand the terms set forth by loan companies that accept it.

Alternatives to Collateral Assignment

Alternatives to collateral assignment include personal loans , home equity loans or surrendering the life insurance policy for its cash value. None of these options require using life insurance as collateral, and each offers different benefits and risks compared to using life insurance as collateral.

FAQ About Collateral Assignment

These questions cover various topics related to collateral assignments, including their requirements, implications for beneficiaries and what happens in different scenarios.

A collateral assignment is a contractual arrangement in which a borrower uses their life insurance policy as collateral for a loan. This agreement grants the lender rights to the policy’s death benefit. The lender is prioritized over other beneficiaries until the loan is repaid in full.

In the context of a life insurance collateral assignment, the collateral is the policy's death benefit. This setup allows lenders to be listed as collateral beneficiaries, guaranteeing that they can recover the outstanding loan balance from the death benefit in the event of the borrower’s death before the debt is fully paid.

In a life insurance contract, a collateral assignment allocates the policy's death benefit as security for a loan. This means that if the borrower dies before repaying the loan, the lender, as the collateral assignee of the life insurance, can claim the owed amount from the death benefit. The remaining balance, if any, goes to the designated beneficiaries, ensuring the loan is covered without affecting other assets.

Collateral assignment allows a lender to claim the life insurance death benefit for an outstanding loan amount while naming a life insurance beneficiary designated who receives the death benefit. The lender's claim is prioritized over the beneficiaries' in collateral assignment.

Most types of life insurance policies , including term, whole and universal life, can be used for collateral assignment, provided the insurance company allows it and the policy has sufficient value.

Yes, the policyholder can change beneficiaries after a collateral assignment, but the lender's right to the death benefit amount remains until the loan is repaid. This ensures the lender's position as a collateral beneficiary.

Canceling your life insurance policy before repaying the debt can lead to a breach of the collateral assignment loan agreement. This action may prompt the lender to increase your interest rate or demand immediate repayment of the outstanding loan balance.

These related sections offer additional insights into concepts and alternatives connected to collateral assignments and life insurance:

Using Collateral for a Personal Loan — This link explains how to use various types of collateral for securing a personal loan, providing a broader context to the specific use of life insurance as collateral.

Term vs. Permanent Life Insurance — This resource compares term and permanent life insurance, helping to understand which policies can be used for collateral assignments.

Permanent Life Insurance — This page details permanent life insurance, a type commonly used in collateral assignments due to its cash value component.

Life Insurance Calculator — This page helps you calculate the appropriate amount of life insurance coverage needed, which is crucial when considering using a policy for collateral.

About Nathan Paulus

Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.

Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.

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Assignment of Life Insurance Policy

The person who assigns the policy, i.e. transfers the rights, is called the Assignor and the one to whom the policy has been assigned, i.e. the person to whom the policy rights have been transferred is called the Assignee.

Assignment of a Life Insurance Policy simply means transfer of rights from one person to another. The policyholder can transfer the rights of his insurance policy to another for various reasons and this process is called Assignment.

The person who assigns the policy, i.e. transfers the rights, is called the Assignor and the one to whom the policy has been assigned, i.e. the person to whom the policy rights have been transferred is called the Assignee. Once the rights have been transferred to the Assignee, the rights of the Assignor stands cancelled and the Assignee becomes the owner of the policy.

here are 2 types of Assignment:

• Absolute Assignment – This means complete Transfer of Rights from the Assignor to the Assignee, without any further conditions applicable.
• Conditional Assignment – This means that the Transfer of Rights will happen from the Assignor to the Assignee subject to certain conditions. If the conditions are fulfilled then only the Policy will get transferred from the Assignor to the Assignee.

Let’s take an example:

Rahul owns 2 Life Insurance policies of value Rs 2 lakhs and Rs 5 lakhs respectively. He would like to gift one policy of Rs 2 lakhs to his best friend Ajay. In that case, he would like to absolutely assign the policy in his name such that the death or maturity proceeds are directly paid to him. Thus, after the assignment, Ajay becomes the absolute owner of the policy. If he wishes, he may again transfer it to someone else for any other reason. This type of Assignment is called Absolute Assignment.

Now, Rahul needed to take a loan for Rs 5 lakhs. So, he thought of doing so against the other policy that he owned for Rs 5 lakhs. To take a loan from ABC bank, he needed to conditionally assign the policy to that Bank and then the bank would be able to pay out the loan money to him. If Rahul failed to repay the loan, then the bank would surrender the policy and get their money back.

Once Rahul’s loan is completely repaid, then the policy would again come back to him. In case, Rahul died before completely repaying the loan, then also the bank can surrender the policy to get their money back. This type of Assignment is called Conditional Assignment.

Sachin Telawane is a Content Manager and writes on various aspects of the Insurance industry. His enlightening insights on the insurance industry has guided the readers to make informed decisions in the course of purchasing insurance plans.

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Assignment of Life Insurance

WARNING! This form permanently transfers ownership of your FEGLI insurance to another individual, trustee, or corporation (however, premiums continue to be withheld from your salary/annuity). An assignment is irrevocable, and cannot be changed later. DO NOT USE THIS FORM if you only wish to designate a beneficiary to receive your life insurance. Instead, use the available designation of beneficiary form .

For more information about assignments and designations of beneficiary, see the FEGLI Booklet on Assignments , and Designation of Beneficiary and Order of Precedence .

FEGLI enrollees use this form to assign ownership of their life insurance coverage to another person, firm, or trust; and assignees use the form to reassign the coverage.

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Post-Loss Assignments of Claims Under Insurance Policies

In the settlement of lawsuits involving insured claims, it is not uncommon that one condition of the settlement is that the defendant assign his or her claims under all applicable insurance policies to the party that filed suit.

Indeed, it is frequently the case that the defendant, particularly when the defendant is an individual, has a limited ability to pay a judgment and insurance coverage offers the best opportunity for a recovery by the suing party. Usually, such settlements are made without any serious thought being given to whether the defendant’s claim against its insurer is assignable; the assumption being that it is assignable.

However, insurance policies generally have anti-assignment clauses which prohibit the assignment of the policy, or an interest in the policy, without the insurer’s consent. These clauses come into play in determining the validity or enforceability of the assignment of a claim under an insurance policy and should be considered when such an assignment is part of a settlement.

When considering the enforceability of anti-assignment clauses in insurance policies, the courts generally draw a distinction between an assignment made prior to the occurrence of a covered loss (a “pre-loss” assignment) and an assignment made after the occurrence of a covered loss (a “post-loss” assignment).

In analyzing pre-loss assignments, the courts recognize that requiring an insurer to provide coverage to an assignee of its policy prior to the occurrence of a covered loss would place the insurer in the position of covering a party with whom it had not contracted nor been allowed to properly underwrite to assess the risks posed by that potential insured, and, accordingly, determine the appropriate premium to charge for the risks being undertaken or choose to decline coverage.

Post-loss assignments, on the other hand, take place after the insurer’s obligations under its policy have become fixed by the occurrence of a covered loss, thus the risk factors applicable to the assignee are irrelevant with regard to the covered loss in question. For these reasons, the majority of the courts enforce anti-assignment clauses to prohibit or restrict pre-loss assignments, but refuse to enforce anti-assignment clauses to prohibit or restrict post-loss assignments.

Katrina Cases

The Louisiana Supreme Court, which had not previously addressed the enforceability of anti-assignment clauses for post-loss assignments, was recently confronted with this issue in the In re: Katrina Canal Breaches Litigation, litigation involving consolidated cases arising out of Hurricane Katrina. The issue arose as a result of a lawsuit brought by the State of Louisiana as the assignee of claims under numerous insurance policies as part of the “Road Home” Program. The Road Home Program was set up following Hurricanes Katrina and Rita to distribute federal funds to homeowners suffering damage from the hurricanes. In return for receiving a grant of up to $150,000, homeowners were required to execute a Limited Subrogation/Assignment agreement, which provided in pertinent part:

Pursuant to these Limited Subrogation/Assignments, the State of Louisiana brought suit against more than 200 insurance companies to recover funds dispensed under the Road Home Program. The suit was removed to Federal Court under the Class Action Fairness Act and the insurers filed motions to dismiss, arguing that the assignments to the State of Louisiana were invalid under the anti-assignment clauses in the homeowner policies at issue.

On appeal, the United States Fifth Circuit Court of Appeals certified the following question to the Louisiana Supreme Court: “Does an anti-assignment clause in a homeowner’s insurance policy, which by its plain terms purports to bar any assignment of the policy or an interest therein without the insurer’s consent, bar an insured’s post-loss assignment of the insured’s claims under the policy when such an assignment transfers contractual obligations, not just the right to money due?”

In answering this question, the Louisiana Supreme Court began by noting that, as a general matter, contractual rights are assignable unless the law, the contract terms or the nature of the contract preclude assignment. Specific to the certified question, Louisiana Civil Code article 2653 provides that a right “cannot be assigned when the contract from which it arises prohibits the assignment of that right.” The Louisiana Supreme Court observed that the language of article 2653 is broad and, on its face, applies to all assignments, including post-loss assignments of insurance claims. The Court, therefore, construed the issue confronting it as whether Louisiana public policy would enforce an anti-assignment clause to preclude post-loss assignments of claims under insurance policies.

In addressing the public policy question, the Louisiana Supreme Court recognized the distinction between pre-loss assignments and post-loss assignments discussed by courts from other states and noted that the prevailing view was that anti-assignment clauses were invalid and/or unenforceable when applied to post-loss assignments. Notwithstanding this weight of authority, the Louisiana Supreme Court stated:

“[W]hile the Louisiana legislature has clearly indicated an intent to allow parties freedom to assign contractual rights, by enacting La. C.C. art. 2653, it has also clearly indicated an intent to allow parties freedom to contractually prohibit assignment of rights. We recognize the vast amount of national jurisprudence distinguishing between pre-loss and post-loss assignments and rejecting restrictions on post-loss assignments, however we find no public policy in Louisiana favoring assignability of claims over freedom of contract.”

Thus, Court refused to invalidate the enforceability of the anti-assignment clauses to the post-loss assignments before it based on public policy, adding that public policy determinations are better suited to the legislature.

Nonetheless, after having recognized the general enforceability of anti-assignment clauses to post-loss assignments, the Court immediately placed limits on when those clauses would be applicable, stating that to be applicable, they “must clearly and unambiguously express that the non-assignment clause applies to post-loss assignments.” The Court refused “to formulate a test consisting of specific terms or words,” which would satisfy this condition and remanded the case to the federal courts to determine whether the individual anti-assignment clauses in the various policies were sufficiently clear and explicit to be enforced with respect to post-loss assignments at issue.

A Broad Application

It should be noted that the Court’s opinion appears to apply broadly to all post-loss assignments irrespective of what specific rights are being assigned, despite the fact that the certified question was narrower and asked only about the applicability of a post-loss assignment where the assignment “transfers contractual obligations, not just the right to money due.”

In a footnote at the beginning of its opinion, the Louisiana Supreme Court observed that in certifying the question to it, the Fifth Circuit “disclaimed any intent” that the Court “confine its reply to the precise form or scope of the legal questions certified.” The footnote indicates that the Court’s opinion was not intended to be limited to only those post-loss assignments involving the assignment of contractual obligations.

Louisiana has departed from the majority view in holding that as a matter of general law, anti-assignment clauses are not inherently void with regard to post-loss assignments. However, it may be that in practical application, the results of individual cases may well be consistent with the majority rule of not enforcing anti-assignment clauses with regard to post-loss assignments because Louisiana courts may be reluctant to find that the anti-assignment clauses are sufficiently “clear and explicit” unless they specifically state that they apply to post-loss assignments, notwithstanding the Louisiana Supreme Court’s unwillingness to “formulate a test consisting of specific terms or words.”

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Assignment of Benefits vs Direction to Pay vs Assignment of Policy

Assignment of Benefits vs. Assignment of Policy

Assignment of Benefits forms, also known as AOBs, play a crucial role in the restoration industry’s contractor-client dynamics. These legal documents empower policyholders to transfer their insurance policy benefits to a third party, effectively connecting their restoration contractor directly to their insurance company. By doing so, policyholders can bypass many of the complications and anxieties typically associated with a restoration project, streamlining the process.

According to Josh Ehmke, Co-owner and General Consult at One Claim Solution , there’s a  common misunderstanding between assignment of benefits and assignment of policy. An assignment of policy refers to the transfer of the benefits and rights of an insurance policy from one party (the policyholder) to another party (the assignee).

“An assignment of policy is never going to be valid. In fact, I haven’t come across a state that allows an assignment of an insurance policy without the insurance company’s prior written consent,” Josh said. “The reason it’s not allowed is because it’s against public policy. It increases the insurance risk substantially.”

For example, a policyholder might have a history of filing numerous claims against their insurance provider, suggesting a pattern that they might be well-versed in exploiting certain loopholes and taking advantage of insurance companies. Additionally, there are concerns that they may not adequately maintain or safeguard their property, leading to an increased risk for the insurance company. 

“That is absolutely different from an assignment of benefits, which grants the rights the policyholder had to the payment under the policy to be transferred to the assignee,” Josh said. ”The only prerequisite for an assignment of benefits other than having a covered claim, is that the loss has already occurred. If you get an assignment of benefits before the loss occurs, that’s essentially a transfer of a policy.”

OCS recently encountered a case where the question arose regarding the scope of an assignment of benefits. Specifically, the issue was whether only the rights of the policyholder are transferred, or if the policyholder’s obligations are also transferred alongside the benefits under the assignment.

“By taking the assignment, the contractor doesn’t assume the policyholder’s obligations under that policy,” Josh said. “It’s very important to word your assignment of benefits appropriately to clearly state that you’re not agreeing to assume any of those policy obligations, and to specify which rights you want.”

Direction to Pay vs. Assignment of Benefits

Direction to pay (DTP) is a financial arrangement where the policyholder, who is entitled to receive an insurance claim payment, instructs the insurance company to pay the claim proceeds directly to a third party. This third party could be a vendor, contractor, service provider, or any other entity to whom the policyholder owes a debt or has entered into an agreement.

“The issue with direction to pay is that the carrier doesn’t have to honor it because it’s not enforceable,” Josh said. “It’s very limited in what it can do, whereas an assignment of benefits is much more powerful because it obligates the insurance company legally to pay you.”

According to Josh, DTP’s are rarely used, except in states like Texas and Florida where AOBs are detrimental to contractors or illegal.

“A DTP is better than nothing and allows you to at least show the carrier that the homeowner granted approval to request payment,” Josh said. “But outside of those situations, the direction to pay in my mind is worthless. When you can have an assignment of benefits, there’s no reason to have a direction to pay at all.”

A Final Word

Understanding the differences between an AOB, Assignment of Policy, and DTP is crucial because each term represents distinct legal and financial arrangements that can significantly impact insurance claims and policyholder rights. To learn more about the value of assignment of benefits in helping you navigate the restoration process, be sure to subscribe to our newsletter .

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Hi there! I’m Connor, the Account Executive for One Claim. My goal is to guide our contractors through the sales process, ensuring you’re equipped with all the information you need to make your decision and hit the ground running once aboard. We view ourselves as an extension of your business and I strive to make the process an enlightening and consultative one. My career has primarily been focused in software sales over a few different industries but the last few years were spent helping general contractors solve similar problems to what we’re doing here at OCS! Outside of work, I love spending time with my family, cooking and boating during the summer months.

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Hello! I’m Nicole, and I’m here to champion for our employees, recruit for new talent, and impact culture at One Claim Solution. I find satisfaction in supporting a memorable employee experience and bring innovation, problem solving, and strategic view to the process. Nothing is more important than our people, and a healthy culture is my top priority! I have had the pleasure of building my career in various sectors, specializing in small to medium size firms focused on high-growth. My experience is centered around driving and implementing change, leading high-performing teams, and driving process improvements. I am excited to make an impact at One Claim. Outside of work, my family and I enjoy getting outdoors as much as possible to explore beautiful Colorado!

Elizabeth McGlone

Demand generation manager.

Great to meet you! I’m Elizabeth, and I’m the one behind all the emails and advertisements you’ve been seeing. As the Demand Generation Manager at One Claim Solution, my mission is to connect with contractors like you who need our services. I’m passionate about having an impact on others and I bring a wealth of experience in demand generation and marketing strategy to create moments of delight, curiosity, and education for you.

Prior to One Claim Solution, I had the privilege of building marketing departments from the ground up at companies in a variety of industries, including IT consulting, first protection, and healthcare. Personally, I love being outdoors, playing Dungeons and Dragons and board games, singing, and traveling.

Alisha Yartzoff

Director of contractor success.

Welcome! I’m Alisha, and I’m here to champion your success as the Director of Contractor Success at One Claim. With a passion for helping contractors thrive, I bring a wealth of experience in onboarding, customer service, and account management to ensure your journey with us is nothing short of exceptional.

Prior to joining One Claim, I had the privilege of scaling SMB and Enterprise Customer Success teams at fast-growing SaaS startups. With over six years of experience at companies like Mavenlink, Teamwork, and ServiceTitan, I honed my expertise in building high-performing teams and fostering proactive, consultative relationships. This background has equipped me with a deep understanding of the challenges faced by businesses like yours, and I’m dedicated to helping you overcome them.

Hi there, my name is Eric! I am the Chief Technology Officer here at OCS, spearheading our technical strategy. I have a background in computer science, graduating cum laude from BYU-Idaho with a Bachelor’s degree in Computer Information Technology.

Before coming to One Claim, I served as the Director of Engineering at Slingshot Technology, Inc., a company later acquired by WorkWave in 2021. My professional journey has spanned both emerging startups and established corporations, with a steadfast focus on cultivating high-trust, low bureaucracy teams and innovating technology using agile methodologies.

In my free time, you can find me flying drones, enjoying the outdoors, and spending time with my family.

Hello, my name is Cam, I’m the COO of One Claim Solution! I come from a management consulting background (Bain & Company) and hold an MBA from the University of Michigan. I have worked at a wide variety of organizations, from Fortune 500 to small-cap, in an equally wide variety of industries. I have over 15 years of experience in operations and strategic growth, and I have spent much of my career focused on developing high-performing tech-enabled service organizations through early stage and high growth phases.

Outside of work, my wife Brittny and I have four kids, ages 13 to 6. As residents of Mesa, Arizona, we love to ski and explore the national parks of the southwest!

Hello, my name is Dan, and I am the CEO of One Claim Solution. I am super excited by everything we are doing at OCS to be the market leading insurance billing specialist that advocates on behalf of our restoration contractors. 

My professional experiences are predominantly corporate in nature. My career started at General Electric in finance and accounting. Immediately prior to joining OCS, I spent time as an investor at Bondcliff Partners and management consultant with Bain & Company. I also hold an MBA from the Kellogg School of Management at Northwestern University and got my BS in finance and accounting from Northeastern University.

Outside of the office, I enjoy spending time with my wife, two young children, and our family dog, Whiskey. We live in Charleston, SC and take advantage of the beautiful weather by spending as much time as possible outside at the beach or adventuring around town

Co-Founder and General Counsel

Hi, I’m Josh! In 2016, I co-founded One Claim Solution with my partner Jeremy Traasdahl, and I serve as General Counsel of One Claim Solution. Working in the restoration industry, Jeremy and I saw contractors struggling to get paid quickly and fairly and we knew there was a need for change. We founded One Claim Solution to be this change and it’s been my privilege to see our company grow and to advocate for our clients as general counsel.

Outside of my passion for helping the restoration industry, I enjoy spending time outdoors, fly-fishing, hunting, skiing, and coaching my kids’ baseball teams. I’ve been married to my amazing wife for 20 years and we have a beautiful family of 5 children.

Jeremy Traasdahl

Hey, I’m Jeremy! In 2016, I co-founded One Claim Solution with my partner Josh Ehmke. Working in the restoration industry, Josh and I saw contractors struggling to get paid quickly and fairly and we knew there was a need for change. We founded One Claim Solution to be this change and it’s been my privilege to lead our amazing team.

Prior to One Claim Solution, I started my career as an inside sales rep for Avnet, then moved to Pepsico as a district sales manager. Outside of work, I love spending time with my wife and four children, two boys and two girls!

Assignment under Insurance Policies

By J Mandakini, NUALS

Editor’s Note: This paper attempts to explore the concept of assignment under Indian law especially Contract Act, Insurance Act and Transfer of Property Act. It seeks to appreciate why the assignment is made use of for securities of a facility sanctioned by ICICI Bank. Also, it explains how ICICI Bank faces certain problems in executing the same. 

INTRODUCTION

For any facility sanctioned by a lender, collateral is always deposited to secure the same. Such mere deposition will not suffice, the borrower has to explicitly permit the lender to recover from the borrower, such securities in case of his default.

This is done by the concept of assignment, dealt with adequately in Indian law. Assignment of obligations is always a tricky matter and needs to be dealt with carefully. The Bank should not fall short of any legally permitted lengths to ensure the same. This is why ambiguity in its security documents have to be rectified. 

This paper attempts to explore the concept of assignment in contract law. It seeks to appreciate why the assignment is made use of for securities of a facility sanctioned by ICICI Bank. The next section will deal with how ICICI Bank faces certain problems in executing the same. The following sections will talk about possible risks involved, as well as defenses and solutions to the same.

WHAT IS ASSIGNMENT?

Assignment refers to the transfer of certain or all (depending on the agreement) rights to another party. The party which transfers its rights is called an assignor, and the party to whom such rights are transferred is called an assignee. Assignment only takes place after the original contract has been made. As a general rule, assignment of rights and benefits under a contract may be done freely, but the assignment of liabilities and obligations may not be done without the consent of the original contracting party.

The liability on a contract cannot be transferred so as to discharge the person or estate of the original contractor unless the creditor agrees to accept the liability of another person instead of the first. [i]

Illustration

P agrees to sell his car to Q for Rs. 100. P assigns the right to receive the Rs. 100 to S. This may be done without the consent of Q. This is because Q is receiving his car, and it does not particularly matter to him, to whom the Rs. 100 is being handed as long as he is being absolved of his liability under the contract. However, notice may still be required to be given. Without such notice, Q would pay P, in spite of the fact that such right has been assigned to S. S would be a sufferer in such case.

In this case, that condition is being fulfilled since P has assigned his right to S. However, P may not assign S to be the seller. P cannot just transfer his duties under the contract to another. This is because Q has no guarantee as to the condition of S’s car. P entered into the contract with Q on the basis of the merits of P’s car, or any other personal qualifications of P. Such assignment may be done with the consent of all three parties – P, Q, S, and by doing this, P is absolved of his liabilities under the contract.

 1.1. Effect of Assignment

Immediately on the execution of an assignment of an insurance policy, the assignor forgoes all his rights, title and interest in the policy to the assignee. The premium or loan interest notices etc. in such cases will be sent to the assignee. [ii] However, the existence of obligations must not be assumed, when it comes to the assignment. It must be accompanied by evidence of the same. The party asserting such a personal obligation must prove the existence of an express assumption by clear and unequivocal proof. [iii]

 Assignment of a contract to a third party destroys the privity of contract between the initial contracting parties. New privity is created between the assignee and the original contracting party. In the illustration mentioned above, the original contracting parties were P and Q. After the assignment, the new contracting parties are Q and S.

 1.2. Revocation of Assignment

Assignment, once validly executed, can neither be revoked nor canceled at the option of the assignor. To do so, the insurance policy will have to be reassigned to the original assignor (the insured).

 1.3. Exceptions to Assignment

There are some instances where the contract cannot be assigned to another.

• Express provisions in the contract as to its non-assignability – Some contracts may include a specific clause prohibiting assignment. If that is so, then such a contract cannot be assigned. Assignability is the rule and the contrary is an exception. [iv]

Pensions, PFs, military benefits etc. Illustration

 1.4. enforcing a contract of assignment.

From the day on which notice is given to the insurer, the assignee becomes the beneficiary of the policy even though the assignment is not registered immediately. It does not wait until the giving of notice of the transfer to the insurer. [vi] However, no claims may lie against the insurer until and unless notice of such assignment is delivered to the insurer.

If notice of assignment is not provided to the obligor, he is discharged if he pays to the assignor. Assignee would have to recover from the assignor. However, if the obligor pays the assignor in spite of the notice provided to him, he would still be liable to the assignee.

The following two illustrations make the point amply clear:

Illustrations

1. Seller A assigns its right to payment from buyer X to bank B. Neither A nor B gives notice to X. When payment is due, X pays A. This payment is fully valid and X is discharged. It will be up to B to recover it from A

2. Seller A assigns to bank B its right to payment from buyer X. B immediately gives notice of the assignment to X. When payment is due, X still pays A. X is not discharged and B is entitled to oblige X to pay a second time.

An assignee doesn’t stand in better shoes than those of his assignor. Thus, if there is any breach of contract by the obligor to the assignee, the latter can recover from the former only the same amount as restricted by counter claims, set offs or liens of the assignor to the obligor.

The acknowledgment of notice of assignment is conclusive proof of, and evidence enough to entertain a suit against an assignor and the insurer respectively who haven’t honoured the contract of assignment.

1.5. Assignment under various laws in India

There is no separate law in India which deals with the concept of assignment. Instead, several laws have codified it under different laws. Some of them have been discussed as follows:

1.5.1. Under the Indian Contract Act

There is no express provision for the assignment of contracts under the Indian Contract Act. Section 37 of the Act provides for the duty of parties of a contract to honour such contract (unless the need for the same has been done away with). This is how the Act attempts to introduce the concept of assignment into Indian commercial law. It lays down a general responsibility on the “representatives” of any parties to a contract that may have expired before the completion of the contract. (Illustrations to Section 37 in the Act).

An exception to this may be found from the contract, e.g. contracts of a personal nature. Representatives of a deceased party to a contract cannot claim privity to that contract while refusing to honour such contract. Under this Section, “representatives” would also include within its ambit, transferees and assignees. [vii]

Section 41 of the Indian Contract Act applies to cases where a contract is performed by a third party and not the original parties to the contract. It applies to cases of assignment. [viii] A promisee accepting performance of the promise from a third person cannot afterwards enforce it against the promisor. [ix] He cannot attain double satisfaction of its claim, i.e., from the promisor as well as the third party which performed the contract. An essential condition for the invocation of this Section is that there must be actual performance of the contract and not of a substituted promise.

  1.5.2. Under the Insurance Act

The creation of assignment of life insurance policies is provided for, under Section 38 of the Insurance Act, 1938.

• When the insurer receives the endorsement or notice, the fact of assignment shall be recorded with all details (date of receipt of notice – also used to prioritise simultaneous claims, the name of assignee etc). Upon request, and for a fee of an amount not exceeding Re. 1, the insurer shall grant a written acknowledgment of the receipt of such assignment, thereby conclusively proving the fact of his receipt of the notice or endorsement. Now, the insurer shall recognize only the assignee as the legally valid party entitled to the insurance policy.

 1.5.3. Under the Transfer of Property Act

Indian law as to assignment of life policies before the Insurance Act, 1938 was governed by Sections 130, 131, 132 and 135 of the Transfer of Property Act 1882 under Chapter VIII of the Act – Of Transfers of Actionable Claims. Section 130 of the Transfer of Property Act states that nothing contained in that Section is to affect Section 38 of the Insurance Act.

 I) Section 130 of the Transfer of Property Act

An actionable claim may be transferred only by fulfilling the following steps:

• Signed by a transferor (or his authorized agent)

The transfer will be complete and effectual as soon as such an instrument is executed. No particular form or language has been prescribed for the transfer. It does not depend on giving notice to the debtor.

The proviso in the section protects a debtor (or other person), who, without knowledge of the transfer pays his creditor instead of the assignee. As long as such payment was without knowledge of the transfer, such payment will be a valid discharge against the transferee. When the transfer of any actionable claim is validly complete, all rights and remedies of transferor would vest now in the transferee. Existence of an instrument in writing is a sine qua non of a valid transfer of an actionable claim. [x]

 II) Section 131 of the Transfer Of Property Act

This Section requires the notice of transfer of actionable claim, as sent to the debtor, to be signed by the transferor (or by his authorized agent), and if he refuses to sign it, a signature by the transferee (or by his authorized agent). Such notice must state both the name and address of the transferee. This Section is intended to protect the transferee, to receive from the debtor. The transfer does not bind a debtor unless the transferor (or transferee, if transferor refuses) sends him an express notice, in accordance with the provisions of this Section.

III) Section 132 of the Transfer Of Property Act

This Section addresses the issue as to who should undertake the obligations under the transfer, i.e., who will discharge the liabilities of the transferor when the transfer has been made complete – would it be the transferor himself or the transferee, to whom the rest of the surviving contract, so to speak, has been transferred.

This Section stipulates, that the transferee himself would fulfill such obligations. However, where an actionable claim is transferred with the stipulation in the contract that transferor himself should discharge the liability, then such a provision in the contract will supersede Ss 130 and 132 of this Act. Where the insured hypothecates his life insurance policies and stipulates that he himself would pay the premiums, the transferee is not bound to pay the premiums. [xi]

FACILITIES SECURED BY INSURANCE POLICIES – HOW ASSIGNMENT COMES INTO THE PICTURE

Many banks require the borrower to take out or deposit an insurance policy as security when they request a personal loan or a business loan from that institution. The policy is used as a way of securing the loan, ensuring that the bank will have the facility repaid in the event of either the borrower’s death or his deviations from the terms of the facility agreement.

Along with the deposit of the insurance policy, the policyholder will also have to assign the benefits of the policy to the financial institution from which he proposes to avail a facility. The mere deposit, without writing, or passing of any document of title to such a claim, does not create any equitable charge. [xii]

ETHICS OF ASSIGNING LIFE INSURANCE POLICY TO LENDERS

The purpose of taking out a life insurance policy on oneself, is that in the event of an untimely death, near and dear ones of the deceased are not left high and dry, and that they would have something to fall back on during such traumatic times. Depositing and assigning the rights under such policy document to another, would mean that there is a high chance that benefits of life insurance would vest in such other, in the event of unfortunate death and the family members are prioritized only second. These are not desirable circumstances where the family would be forced to cope with the death of their loved one coupled with the financial crisis.

 Thus, there is a need to examine the ethics of:

• The bank accepting such assignment

The customer should be cautious before assigning his rights under life insurance policies. By “cautious”, it is only meant that he and his dependents and/or legal heirs should be aware of the repercussions of the act of assigning his life insurance policy. It is conceded that no law prohibits the assignment of life insurance policies.

In fact, Section 38 of the Insurance Act, 1938 , provides for such assignments. Judicial cases have held life insurance policies as property more than a social welfare measure. [xiii] Further, the bank has no personal relationship with any customer and thus has no moral obligation to not accept such assignments of life insurance.

However, the writer is of the opinion that, in dealing with the assignment of life insurance policies, utmost care and caution must be taken by the insured when assigning his life insurance policy to anyone else.

CURRENT STAND OF ICICI REGARDING FACILITIES SECURED BY INSURANCE POLICY, WITH SPECIFIC REFERENCE TO ASSIGNMENT OF OBLIGATIONS

This Section seeks to address and highlight the manner in which ICICI Bank drafts its security documents with regard to the assignment of obligations. The texts placed in quotes in the subsequent paragraphs are verbatim extracts from the security document as mentioned.

Composite Document for Corporate and Realty Funding

 “ 8 .   CHARGING CLAUSE

  The Mortgagor doth hereby:

iii) Assign and transfer unto the Mortgagee all the Bank Accounts and all rights, title, interest, benefits, claims and demands whatsoever of the Mortgagor in, to, under and in respect of the Bank Accounts and all monies including all cash flows and receivables and all proceeds arising from Projects and Other Projects_______________, insurance proceeds, which have been deposited / credited / lying in the Bank Accounts, all records, investments, assets, instruments and securities which represent all amounts in the Bank Accounts, both present and future (the “Account Assets”, which expression shall, as the context may permit or require, mean any or each of such Account Assets) to have and hold the same unto and to the use of the Mortgagee absolutely and subject to the powers and provisions herein contained and subject also to the proviso for redemption hereinafter mentioned;

(v) Assign and transfer unto the Mortgagee all right, title, interest, benefit, claims and demands whatsoever of the Mortgagors, in, to, under and/or in respect of the Project Documents (including insurance policies) including, without limitation, the right to compel performance thereunder, and to substitute, or to be substituted for, the Mortgagor thereunder, and to commence and conduct either in the name of the Mortgagor or in their own names or otherwise any proceedings against any persons in respect of any breach of, the Project Documents and, including without limitation, rights and benefits to all amounts owing to, or received by, the Mortgagor and all claims thereunder and all other claims of the Mortgagor under or in any proceedings against all or any such persons and together with the right to further assign any of the Project Documents, both present and future, to have and to hold all and singular the aforesaid assets, rights, properties, etc. unto and to the use of the Mortgagee absolutely and subject to the powers and provisions contained herein and subject also to the proviso for redemption hereinafter mentioned.”

 ICICI Bank’s Standard Terms and Conditions Governing Consumer Durable Loans

  “ insurance.

The Borrower further agrees that upon any monies becoming due under the policy, the same shall be paid by the Insurance Company to ICICI Bank without any reference / notice to the Borrower, but not exceeding the principal amount outstanding under the Insurance Policy. The Borrower specifically acknowledges that in all cases of claim, the Insurance Company will be solely liable for settlement of the claim, and he/she will not hold ICICI Bank responsible in any manner whether for compensation, recovery of compensation, processing of claims or for any reason whatsoever.

Reference has been made only to assignment of assets, rights, benefits, interests, properties etc. No specific reference has been made to the assignment of obligations of the assignor under such insurance contract.

THE ISSUE FACED BY ICICI BANK

Where ICICI Bank accepts insurance policy documents of customers as security for a loan, in the light of the fact that the documents are silent about the question of assignment of obligations, are they assigned to ICICI Bank? Where there is hypothecation of a life insurance policy, with a stipulation that the mortgagor (assignor) should pay the premiums, and that the mortgagee (assignee) is not bound to pay the same, Sections 130 and 132 do not apply to such cases. [xiv] With rectification of this issue, ICICI Bank can concretize its hold over the securities with no reservations about its legality.

RISKS INVOLVED

This section of the paper attempts to explore the many risks that ICICI Bank is exposed to, or other factors which worsen the situation, due to the omission of a clause detailing the assignment of obligations by ICICI Bank.

Practices of Other Companies

The practices of other companies could be a risk factor for ICICI Bank in the light of the fact that some of them expressly exclude assignment of obligations in their security documents.

There are some companies whose notice of assignment forms contain an exclusive clause dealing with the assignment of obligations. It states that while rights and benefits accruing out of the insurance policy are to be assigned to the bank, obligations which arise out of such policy documents will not be liable to be performed by the bank. Thus, they explicitly provide for the only assignment of rights and benefits and never the assignment of obligations.

Possible Obligation to Insurance Companies

By not clearing up this issue, ICICI Bank could be held to be obligated to the insurance company from whom the assignor took the policy, for example, with respect to insurance premiums which were required to be paid by the assignor. This is not a desirable scenario for ICICI Bank. In case of default by the assignor in the terms of the contract, the right of ICICI Bank over the security deposited (insurance policy in question) could be fraught in the legal dispute.

Possible litigation

Numerous suits may be instituted against ICICI Bank alleging a violation of the Indian Contract Act. Some examples include allegations of concealment of fact, fraud etc. These could be enough to render the existing contract of assignment voidable or even void.

Contra Proferentem

This doctrine applies in a situation when a provision in the contract can be interpreted in more than one way, thereby creating ambiguities. It attempts to provide a solution to interpreting vague terms by laying down, that a party which drafts and imposes an ambiguous term should not benefit from that ambiguity. Where there is any doubt or ambiguity in the words of an exclusion clause, the words are construed more forcibly against the party putting forth the document, and in favour of the other party. [xv]

The doctrine of contra proferentem attempts to protect the layman from the legally knowledgeable companies which draft standard forms of contracts, in which the former stands on a much weaker footing with regard to bargaining power with the latter. This doctrine has been used in interpreting insurance contracts in India. [xvi]

If litigation ensues as a result of this uncertainty, there are high chances that the Courts will tend to favour the assignor and not the drafter of the documents.

POSSIBLE DEFENSES AGAINST DISPUTES FOR THE SECURITY DOCUMENTS AS THEY ARE NOW

This section of the paper attempts to give defences which the Bank may raise in case of any disputes arising out of silence on the matter of assignability of obligations.

Interpretation of the Security Documents

UNIDROIT principles expressly provide a method for interpretation of contracts. [xvii] The method consists of utilizing the following factors:

This defence relates to the concept of estoppel embodied in Section 115 of the Indian Evidence Act, 1872. According to the Section, when one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representatives, to deny the truth of that thing.

If a man either by words or by conduct has intimated that he consents to an act which has been done and that he will not offer any opposition to it, and he thereby induces others to do that which they otherwise might have abstained from, he cannot question legality of the act he had sanctioned to the prejudice of those who have so given faith to his words or to the fair inference to be drawn from his conduct. [xviii] Subsequent conduct may be relevant to show that the contract exists, or to show variation in the terms of the contract, or waiver, or estoppel. [xix]

Where the meaning of the instrument is ambiguous, a statement subsequently interpreting such instrument is admissible. [xx] In the present case, where the borrower has never raised any claims with regard to non assignability of obligations on him, and has consented to the present conditions and relations with ICICI Bank, he cannot he cannot be allowed to raise any claims with respect to the same.

Internationally, the doctrine of post contractual conduct is invoked for such disputes. It refers to the acts of parties to a contract after the commencement of the contract. It stipulates that where a party has behaved in a particular manner, so as to induce the other party to discharge its obligations, even if there has been a variation from the terms of the contract, the first party cannot cite such variation as a reason for its breach of the contract.

Where the parties to a contract are both under a common mistake as to the meaning or effect of it, and therefore embark on a course of dealing on the footing of that mistake, thereby replacing the original terms of the contract by a conventional basis on which they both conduct their affairs, then the original contract is replaced by the conventional basis. The parties are bound by the conventional basis. Either party can sue or be sued upon it just as if it had been expressly agreed between them. [xxi]

The importance of consensus ad idem has been concretized by various case laws in India. Further, if the stipulations and terms are uncertain and the parties are not ad idem there can be no specific performance, for there was no contract at all. [xxii]

In the present case, the minds of the assignor and assignee can be said to have not met while entering into the assignment. The assignee never had any intention of undertaking any obligations of the assignor. In Hartog v Colin & Shields, [xxiii] the defendants made an offer to the plaintiffs to sell hare skins, offering to a pay a price per pound instead of per piece.

AVOIDING THESE RISKS

To concretize ICICI Bank’s stand on the assignment of obligations in the matter of loans secured by insurance policies, the relevant security documents could be amended to include such a clause.

For instances where loans are secured by life insurance policies, a standard set by the American Banker’s Association (ABA) has been followed by many Indian commercial institutions as well. [xxvi] The ABA is a trade association in the USA representing banks ranging from the smallest community bank to the largest bank holding companies. ABA’s principal activities include lobbying, professional development for member institutions, maintenance of best practices and industry standards, consumer education, and distribution of products and services. [xxvii]

There are several ICICI security documents which have included clauses denying any assignment of obligations to it. An extract of the deed of hypothecation for vehicle loan has been reproduced below:

“ 3. In further pursuance of the Loan Terms and for the consideration aforesaid, the Hypothecator hereby further agrees, confirms, declares and undertakes with the Bank as follows:

(i)(a) The Hypothecator shall at its expenses keep the Assets in good and marketable condition and, if stipulated by the Bank under the Loan Terms, insure such of the Assets which are of insurable nature, in the joint names of the Hypothecator and the Bank against any loss or damage by theft, fire, lightning, earthquake, explosion, riot, strike, civil commotion, storm, tempest, flood, erection risk, war risk and such other risks as may be determined by the Bank and including wherever applicable, all marine, transit and other hazards incidental to the acquisition, transportation and delivery of the relevant Assets to the place of use or installation. The Hypothecator shall deliver to the Bank the relevant policies of insurance and maintain such insurance throughout the continuance of the security of these presents and deliver to the Bank the renewal receipts / endorsements / renewed policies therefore and till such insurance policies / renewal policies / endorsements are delivered to the Bank, the same shall be held by the Hypothecator in trust for the Bank. The Hypothecator shall duly and punctually pay all premia and shall not do or suffer to be done or omit to do or be done any act, which may invalidate or avoid such insurance. In default, the Bank may (but shall not be bound to) keep in good condition and render marketable the relevant Assets and take out / renew such insurance. Any premium paid by the Bank and any costs, charges and expenses incurred by the Bank shall forthwith on receipt of a notice of demand from the Bank be reimbursed by the Hypothecator and/or Borrower to the Bank together with interest thereon at the rate for further interest as specified under the Loan Terms, from the date of payment till reimbursement thereof and until such reimbursement, the same shall be a charge on the Assets…”

The inclusion of such a clause in all security documents of the Bank can avoid the problem of assignability of obligations in insurance policies used as security for any facility sanctioned by it.

An assignment of securities is of utmost importance to any lender to secure the facility, without which the lender will not be entitled to any interest in the securities so deposited.

In this paper, one has seen the need for assignment of securities of a facility. Risks involved in not having a separate clause dealing with non assignability of obligations have been discussed. Certain defences which ICICI Bank may raise in case of the dispute have also been enumerated along with solutions to the same.

Formatted by March 2nd, 2019.

BIBLIOGRAPHY

[i] J.H. Tod v. Lakhmidas , 16 Bom 441, 449

[ii] http://www.licindia.in/policy_conditions.htm#12, last visited 30 th June, 2014

[iii] Headwaters Construction Co. Ltd. v National City Mortgage Co. Ltd., 720 F. Supp. 2d 1182 (D. Idaho 2010)

[iv] Indian Contract Act and Specific Relief Act, Mulla, Vol. I, 13 th Edn., Reprint 2010, p 968

[v] Khardah Co. Ltd. v. Raymond & Co ., AIR 1962 SC 1810: (1963) 3 SCR 183

[vi] Principles of Insurance Law, M.N. Srinivasan, 8 th Edn., 2006, p. 857

[vii] Ram Baran v Ram Mohit , AIR 1967 SC 744: (1967) 1 SCR 293

[viii] Sri Sarada Mills Ltd. v Union of India, AIR 1973 SC 281

[ix] Lala Kapurchand Godha v Mir Nawah Himayatali Khan, [1963] 2 SCR 168

[x] Velayudhan v Pillaiyar, 9 Mad LT 102 (Mad)

[xi] Hindustan Ideal Insurance Co. Ltd. v Satteya, AIR 1961 AP 183

[xii] Mulraj Khatau v Vishwanath, 40 IA 24 – Respondent based his claim on a mere deposit of the policy and not under a written transfer and claimed that a charge had thus been created on the policy.

[xiii] Insure Policy Plus Services (India) Pvt. Ltd. v The Life Insurance Corporation of India, 2007(109)BOMLR559

[xiv] Transfer of Property Act, Sanjiva Row, 7 th Edn., 2011, Vol II, Universal Law Publishing Company, New Delhi

[xv] Ghaziabad Development Authority v Union of India, AIR 2000 SC 2003

[xvi] United India Insurance Co. Ltd. v M/s. Pushpalaya Printers, [2004] 3 SCR 631, General Assurance Society Ltd. v Chandumull Jain & Anr., [1966 (3) SCR 500]

[xvii] UNIDROIT Principles, Art 4.3

[xviii] B.L.Sreedhar & Ors. v K.M. Munireddy & Ors., 2002 (9) SCALE 183

[xix] James Miller & Partners Ltd. v Whitworth Street Estates (Manchester) Ltd., [1970] 1 All ER 796 (HL)

[xx] Godhra Electricity Co. Ltd. v State of Gujarat, AIR 1975 SC 32

[xxi] Amalgamated Investment & Property Co. Ltd. v Texas Commerce International Bank Ltd., [1981] 1 All ER 923

[xxii] Smt. Mayawanti v Smt. Kaushalya Devi, 1990 SCR (2) 350

[xxiii] [1939] 3 All ER 566

[xxiv] Terrell v Alexandria Auto Co., 12 La.App. 625

[xxv] http://www.uncitral.org/pdf/english/CISG25/Pamboukis.pdf, last visited on 30 th June, 2014

[xxvi] https://www.phoenixwm.phl.com/shared/eforms/getdoc.jsp?DocId=525.pdf, last visited on 30 th June, 2014

[xxvii] http://www.aba.com/About/Pages/default.aspx, last visited on 30 th June, 2014

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