Insurance contract is full of jargon. One such jargon most often used is Assignment. An assignment is a legal agreement making the lender as the primary beneficiary of a death benefit in order to get a loan. The lender can cash in the insurance policy and recover what is owed if the borrower is unable to pay.
Once the rights are assigned or transferred, the rights of the policyholder are cancelled and the assignee becomes the owner of the insurance policy. If the loan is repaid before the policyholder’s death, the assignment is cancelled and the assignee is no longer the beneficiary of the insurance policy.
A policy cannot be mortgaged by just placing it with the lender. The transaction has no legal value. The policy can be transferred through assignment and proper endorsement. There are two types of assignment.
1) Absolute Assignment is the complete transfer of rights from the Assignor to the Assignee with no conditions applicable.
2) Conditional Assignment is the transfer of rights from the Assignor to the Assignee under certain conditions. The policy will get transferred only if the conditions are fulfilled.
Policies which are transferred in this manner are usually single premium policies or policies nearing maturity.