Collateral assignment is used to secure a loan with the policy’s cash value.

• A. True
• B. False
• C. Only for certain types of policies
• D. It increases the death benefit.

Answer: (A)

Collateral assignment means pledging the policy’s cash value as security for a loan. The policy owner still owns and controls the policy and continues to pay premiums, while the lender gains a claim limited to the cash value (or the loan balance) tied to that loan. It’s a temporary arrangement: if the loan is repaid, the assignment is released. If the borrower dies with an outstanding loan, the death benefit can be used to satisfy that loan, potentially reducing the amount paid to beneficiaries. This works only with policies that have cash value, like whole life or universal life, not term policies that don’t accumulate cash value. So using the policy’s cash value as collateral for a loan is exactly what collateral assignment accomplishes.