Which of the following statements concerning the assignment of policy proceeds to a third party is correct? I. An assignment of proceeds is often done when the policy is used as collateral for a loan. II. A policyholder is restricted from assigning policy proceeds to a third party on a temporary basis.

• A. I only
• B. II only
• C. Both I and II
• D. Neither I nor II

Answer: (A)

Assigning policy proceeds is a common way to secure a loan using life insurance. In a collateral assignment, the third party—often the lender—receives a claim on the policy’s death benefit up to the amount of the outstanding loan. The policyowner generally retains ownership and control of the policy, and the lender’s right to the proceeds is limited to the loan balance. When the loan is repaid, the assignment is released and any remaining proceeds go to the policyowner or the designated beneficiary.

Temporary assignments are also possible; a policyholder can assign proceeds to a third party for a limited period, such as while a loan is outstanding. Therefore, the idea that assignments cannot be temporary is not correct.

Thus, the statement about assigning proceeds to secure a loan is correct, while the notion that temporary assignments are prohibited is not.