What Is Absolute Assignment in Insurance?
Learn about absolute assignment in insurance, the full and permanent transfer of policy ownership.
An assignment in insurance generally refers to the transfer of policy rights from one party to another. An absolute assignment is a complete and irrevocable transfer of all ownership, title, and interest in an insurance policy. This action shifts control of the policy from the original policyholder to a new party. It is a definitive legal action with significant implications for both the original and new owner.
Understanding Absolute Assignment
An absolute assignment represents the permanent and unconditional transfer of all rights associated with an insurance policy from the policyholder (assignor) to another individual or entity (assignee). This transfer is final; the assignor gives up all control and ownership of the policy without any conditions for its return.
This type of assignment applies to permanent life insurance policies that accumulate cash value, such as whole life, universal life, variable life, and indexed universal life insurance. These policies build a savings component over time, which can be accessed during the policyholder’s lifetime. Once an absolute assignment is executed, the assignee gains full authority over this cash value component, along with all other policy benefits.
Mechanics of Absolute Assignment
Upon the completion of an absolute assignment, the assignee becomes the new policy owner, assuming full control over the insurance contract. This comprehensive control includes the authority to change the policy’s beneficiary designation, take out loans against the policy’s cash value, or even surrender the policy to receive its cash surrender value. The assignee also gains the right to receive any dividends issued by the insurer and make all other policy-related decisions.
Absolute assignments are employed in various scenarios, such as estate planning and financial structuring. For instance, an individual might gift a life insurance policy to a family member or a charitable organization as part of their estate plan. Such transfers can help manage estate taxes or facilitate philanthropic goals. Another common use occurs in divorce settlements, where a policy might be transferred to an ex-spouse. Businesses may also use absolute assignments for key person insurance or as part of buy-sell agreements to ensure business continuity.
Absolute Assignment Compared to Collateral Assignment
The distinction between an absolute assignment and a collateral assignment is important due to their differing purposes and legal implications. An absolute assignment signifies a complete and irrevocable transfer of all policy rights, making the assignee the new, permanent owner of the policy.
In contrast, a collateral assignment involves a temporary and conditional transfer of certain policy rights, primarily used to secure a debt or loan. With a collateral assignment, the policyholder maintains ownership of the policy, but the lender (assignee) holds a claim to the policy’s death benefit or cash value only up to the outstanding loan amount. Once the debt is fully repaid, the collateral assignment is released, and full control reverts to the original policyholder.
Executing an Absolute Assignment
The process of formally executing an absolute assignment involves several procedural steps to ensure the transfer is legally recognized by the insurance company. The initial step requires the policyholder, or assignor, to obtain the specific absolute assignment form directly from their insurance provider. It is important to use the insurer’s official form to ensure proper processing.
Once obtained, the form must be accurately completed with detailed information, including the policy number, the full legal names and addresses of both the assignor and the assignee, and the relationship between them. The assignor’s signature is required on the form, and it often needs to be notarized to verify its authenticity.
After completion, the signed and notarized form must be submitted to the insurance company’s administrative office for review. The assignment becomes effective only after the insurer acknowledges and records the transfer in their systems, typically sending a confirmation to both parties.