State RegulationsFL specificDifficulty 2/5
A Tampa business owner assigns her individual life policy to her bank as collateral for a business loan. If she dies before repaying the loan, how are the proceeds paid?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Under Chapter 627, Florida Statutes, a collateral assignment gives a lender a security interest in the policy: on the insured's death the assignee-creditor receives the outstanding loan balance, and the remainder of the death benefit passes to the named beneficiary. The bank does not collect the entire benefit regardless of the debt, and the beneficiary is not wiped out by the assignment.
Why the other options are wrong
- A) A collateral assignee's interest is limited to the debt owed - no more.
- C) Ignoring the assignment would defeat the security interest the owner deliberately granted.
- D) The insurer pays the parties directly under the assignment of record; it does not escrow proceeds for the estate.
Memory hook
Collateral assignment: bank gets the balance, beneficiary gets the rest.