What are the two types of assignments in life insurance policies?

In the context of life insurance policies, the two recognized types of assignments are absolute and collateral. An absolute assignment transfers complete ownership of the policy from the original policyholder to another individual or entity. This means that the new owner has full rights to make changes to the policy, including changing beneficiaries or accessing cash value.

On the other hand, a collateral assignment is a temporary transfer of some rights to another party, often to secure a loan. For instance, a policyholder may use a life insurance policy as collateral for a loan, allowing the lender to claim proceeds up to the amount of the loan in case of the insured's death. However, the original policyholder retains ownership and may still maintain some rights over the policy.

Understanding these distinctions is essential, as they impact how rights to the policy are managed and what happens upon the death of the insured. The choice of absolute or collateral assignment depends on the policyholder's needs in financial situations.