A policyowner transfers all rights in a life insurance policy to another person. This transfer is called:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
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.
Why the other options are wrong
- B) A collateral assignment conveys only the rights needed to secure a debt, not full ownership; the policyowner retains the remaining rights. Under a collateral assignment only the amount of the secured debt is protected, and full ownership stays with the assignor.
- C) A beneficiary designation names who receives the death benefit; it does not transfer ownership or control of the policy. The designation can be changed by the owner, which shows it conveys no ownership itself.
- D) A conversion changes the policy type, such as from term to whole life; it does not transfer ownership to another person. Conversion is a coverage feature, not a transfer of rights, so it cannot be the correct label here.
Memory hook
Absolute = all keys handed over. Collateral = only the loan's key.