Which arrangement gives a lender a claim on a policy's benefits to secure repayment but does not give control of the policy to the lender?

• A. Beneficiary designation
• B. Assignment on death
• C. Waiver
• D. Collateral Assignment

Answer: (D)

Collateral assignment is a way to use a life policy as security for a loan while keeping ownership with the insured. The lender gains a lien on the policy’s cash value and on any death benefit up to the loan amount, so the loan is repaid from those proceeds if needed. The insured remains the policy owner and can still control the policy—change beneficiaries, borrow, or pay premiums—subject to the lender’s claim. Once the loan is satisfied, the lien is released; if the insured dies, the death benefit is first applied to the loan up to the collateral amount, and any remaining proceeds go to the insured’s beneficiaries. This setup differs from simply naming a beneficiary or transferring ownership on death, which don’t provide a lender with a security interest.