Connecticut Life Producer Practice exam

Which assignment allows the transfer of a part of ownership rights?

1. Absolute assignment

2. Collateral assignment

3. Irrevocable assignment

4. Beneficiary assignment

The correct answer is: Collateral assignment

A collateral assignment is specifically designed to transfer only a part of the ownership rights to a policy, often for the purpose of securing a loan. In this arrangement, the original policyholder retains certain rights while granting the lender or another party rights to the policy's benefits, typically to the extent necessary to secure the debt. This means that the policyholder can still maintain ownership of the policy and certain powers while satisfying the requirements of the creditor. In contrast, absolute assignments transfer complete ownership of the policy and all benefits and rights to a new party, leaving the original policyholder with no claims to the policy or its benefits. Irrevocable assignments are similar but indicate that the assignment cannot be changed without the consent of the assignee, providing less flexibility for the original policyholder. A beneficiary assignment is not an established term in insurance practices, as beneficiaries receive proceeds but do not take on ownership rights. Thus, collateral assignment is the only option that allows partial ownership transfer while ensuring the original policyholder retains some level of control over the policy.