In a policy with a collateral assignment, which statement is true?

• A. Collateral assignment does not require beneficiary consent.
• B. Collateral assignment is permanent until revoked.
• C. Collateral assignment requires consent of the beneficiary.
• D. Collateral assignment transfers ownership to the collateral lender.

Answer: (C)

In a collateral assignment, the borrower uses the life policy as security for a loan. The policy owner retains ownership and can still name or change the beneficiary, but the lender gains a security interest in the policy’s death benefit up to the loan amount. The key point is that this security arrangement does not require the beneficiary’s consent; it’s an agreement between the borrower and the lender recognized by the insurer, designed to ensure loan repayment from the death benefit if the insured dies.

This arrangement is not permanent and not a transfer of ownership. It ends when the loan is paid off or the assignment is revoked, and it does not transfer ownership to the collateral lender—the lender’s right is limited to the portion of the death benefit needed to satisfy the loan.