A Pennsylvania policyowner assigns her life policy to a bank as security for a business loan. Under the ownership-and-assignment rules the Pennsylvania Insurance Department's outline covers at 40 P.S. § 510, what is the effect of this collateral assignment?
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Why A is correct
A collateral assignment conveys only a limited interest: the assignee, here the bank, is entitled to proceeds up to the amount of the debt secured, and the balance of any death benefit passes to the named beneficiary. This contrasts with an absolute assignment, which transfers the entire ownership interest permanently. Under the ownership-and-assignment framework cited at 40 P.S. § 510 in the Insurance Company Law, the distinction matters practically: when the loan is repaid, the collateral assignment's purpose is spent, and the policyowner's full control resumes without the beneficiary designation having been destroyed.
Why the other options are wrong
- B) Taking the entire death benefit describes an absolute assignment; a collateral assignment gives the bank no more than the debt it secured.
- C) Permanence is the hallmark of an absolute assignment; a collateral assignment serves only until the loan is satisfied.
- D) The beneficiary's interest is not extinguished, only subordinated to the assignee's secured amount; remaining proceeds still flow to the beneficiary.
Memory hook
Collateral takes only what's owed; the rest still reaches the beneficiary.