Collateral Assignment

The employer and employee split the premium payments and share the policy's cash value and death benefit — A split-dollar arrangement is a method of financing and allocating a permanent life insurance policy between an employer and an employee (or between a corporation and a shareholder). The parties agree to split the premium payments and, in turn, split the benefits: the employer typically receives an amount equal to its premium contribution (often tied to the policy's cash value), and the employee's designated beneficiary receives the remaining death benefit. The policy is usually owned by the employee with the employer named as beneficiary to the extent of its interest, or a collateral assignment is used.

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An absolute assignment — An absolute assignment transfers all ownership rights in the policy to another party, including the right to change beneficiaries, borrow against the cash value, surrender the policy, and choose settlement options. The assignee becomes the new policyowner. A collateral assignment transfers only the limited rights needed to secure a debt, such as the right to receive an amount equal to the outstanding loan. Absolute assignment is commonly used when a policy is gifted or ownership is otherwise completely transferred. Because an assignment can defeat beneficiary expectations, policyowners should give written notice to the insurer so the transfer is recorded and future elections are respected.

National insurance concept