An insured policyowner absolutely assigns her life insurance policy to a lender as part of a business arrangement. Under an absolute assignment, which statement is correct?

Why A is correct

An absolute assignment transfers all ownership rights in the life insurance policy to the assignee, including the rights to change the beneficiary, borrow against or surrender the cash value, and control the contract. This is different from a collateral assignment, which transfers only enough rights to secure a debt, leaving the owner with control over the balance of the policy. Because the absolute assignee steps into the owner's shoes, the previous owner no longer holds the right to change the beneficiary, and no beneficiary consent is required for the transfer. The assignee becomes the new owner for all purposes, so any later beneficiary changes are directed by the assignee.

Why the other options are wrong

• B) Limiting the assignee's rights to the amount of the outstanding loan is the hallmark of a collateral assignment, which transfers only a security interest to protect the creditor. An absolute assignment, in contrast, conveys the entire ownership interest in the policy without limiting the assignee to the size of the debt.
• C) Retaining the beneficiary-change right until the loan is repaid describes a collateral assignment, under which the debtor keeps ownership control over the policy. Under an absolute assignment, the original owner surrenders all rights, including the beneficiary power, immediately and permanently.
• D) A beneficiary's consent is not required to assign a life insurance policy. Consent requirements arise only when an irrevocable beneficiary designation is being changed, because that beneficiary holds a vested interest, which is a different situation from an assignment made by the owner.

Memory hook

Absolute = hand over the whole policy. Collateral = only the security interest.