State RegulationsMA specificDifficulty 2/5
A Massachusetts policyowner assigns her life policy to a bank as security for a business loan, retaining all rights not needed to secure the debt. Under the assignability provision, M.G.L. c. 175, § 132(12), what kind of assignment is this and what does the bank receive?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The assignability provision of M.G.L. c. 175, § 132(12) contemplates that a policyowner may assign the policy, and an assignment made as security for a debt is a collateral assignment. The bank receives a security interest limited to the value needed to satisfy the loan; the owner keeps every other right. Recognizing the collateral-versus-absolute distinction determines who controls the policy and to what extent.
Why the other options are wrong
- B) An absolute assignment transfers all ownership rights permanently; this owner deliberately retained her remaining rights, so the transfer is collateral in nature.
- C) A collateral assignment creates enforceable rights in the assignee as to the secured value; describing the bank as holding nothing misreads M.G.L. c. 175, § 132(12).
- D) Naming the bank as beneficiary would not transfer the security interest the owner intends, and a beneficiary designation is not the assignment mechanism under M.G.L. c. 175, § 132(12).
Memory hook
Collateral assignment secures the loan; it does not sell the farm.