Collateral Assignment

[quackattack99]

I am about to write a policy for a guy that is buying a business. The bank is requiring that he have a life policy to cover them, as a condition of the loan. All the companies I have checked with so far, tell me the way to do that is for the policyholder to select a beneficiary, and then complete a Collateral Assignment designating the benefit to the bank to cover the loan. Is this the way it is always done, or can the bank just be designated as the beneficiary straight out?

Thanks!

 

[VolAgent]

You are right to question this advice. After all, these insurance companies do this dozens of times a day. They don't have a clue what they are doing.

A collateral assignment is vastly different designating a beneficiary.

 

[tlmarketing]

Don't name the bank directly as beneficiary.

Cover the bank through a collateral assignment rather than direct beneficiary so that the bank will only receive what they are owed on the loan vs. the entire death benefit of the policy.

 

[bill3173]

You get the form from the carrier and follow the instructions. The bank will file a copy of the form with the client's loan documents and you will retain a copy as well.

The assignment is for the designated loan only, and will cover the balance of the loan at the time of death, no other bank debts. It's not quantum tree surgery, but it is good experience and will make the client feel confident in dealing with you.