What Is an Assignee on a Life Insurance Policy?

An assignee on a life insurance policy is a person or entity that receives a transfer of rights, title, and benefits from the original policy owner. This transfer, known as an assignment, means the assignee gains certain claims or control over the policy, either for a specific period or permanently. The original policy owner, who initiates this transfer, is referred to as the assignor. An assignee steps into a position of having a vested interest in the policy’s value or proceeds.

Understanding Key Roles in Life Insurance

To understand the role of an assignee, it is important to first distinguish it from other participants in a life insurance policy. The policy owner is the individual or entity who purchases the policy and holds the contractual rights to make all decisions about it. These rights include selecting the type of policy, choosing beneficiaries, accessing any cash value through withdrawals or loans, or even cancelling the policy entirely. The insured is the person whose life is covered by the policy; their death triggers the payout of the death benefit. In many cases, the policy owner and the insured are the same person, but they can also be different individuals, such as a parent owning a policy on a child.

The beneficiary is the person or entity designated by the policy owner to receive the death benefit when the insured passes away. Unlike the policy owner, beneficiaries generally have no legal rights to the policy or its cash value while the insured is alive, unless they are designated as an irrevocable beneficiary, which is less common. An assignee’s role differs significantly from these. An assignee obtains specific rights and often control over the policy while the insured is still alive, gaining these directly from the policy owner. This means the assignee can, depending on the type of assignment, have the authority to make changes to the policy, collect its cash value, or claim the death benefit, which can directly affect the beneficiary’s eventual claim.

Common Reasons for Policy Assignment

Policy owners often assign their life insurance policies for various practical and financial reasons. One common scenario involves using the policy as collateral for a loan, such as a personal loan or a business loan from a bank or other lender. In this arrangement, the policy owner assigns specific rights to the lender as security for the debt, providing the lender with a claim to a portion or all of the death benefit if the loan is not repaid. This gives the lender an additional layer of security beyond other assets, potentially allowing the policy owner to secure more favorable loan terms.

Another reason for assignment can be to make a gift. An individual might assign a policy to a family member, a trust, or a charitable organization, effectively transferring the future death benefit to them. This can be a part of estate planning, allowing the policy owner to immediately transfer the value of the policy outside of their estate. Such gifts are subject to federal gift tax rules, and if the policy’s value exceeds the annual gift tax exclusion, which is $18,000 per recipient for 2024, a gift tax return (IRS Form 709) may need to be filed.

Policy assignment can also occur as part of a divorce settlement or other legal obligations. In such cases, one spouse might assign ownership of a life insurance policy to the other spouse to ensure financial support, such as alimony or child support, or to fulfill obligations outlined in a court order. This provides the receiving spouse with a direct claim to the policy’s benefits, securing future financial arrangements. The assignment provides a clear and legally recognized transfer of policy rights, helping to ensure compliance with marital settlement agreements.

Different Kinds of Policy Assignment

Life insurance policy assignments typically fall into two main categories: absolute assignment and collateral assignment, each with distinct implications for the policy’s control and benefits. An absolute assignment involves the complete and permanent transfer of all ownership rights from the policy owner (assignor) to the assignee. Once an absolute assignment is made, the original policy owner relinquishes all control over the policy, including the right to change beneficiaries, surrender the policy for its cash value, or borrow against it.

With an absolute assignment, the assignee becomes the new policy owner and assumes full responsibility for future premium payments, unless otherwise specified in an agreement between the parties. The assignee can then exercise all privileges associated with policy ownership, including redesignating beneficiaries or cashing out the policy. This type of assignment is often used for gifts, in life settlement transactions where the policy is sold to a third party, or as part of estate planning to remove the policy from the original owner’s taxable estate, though a three-year rule applies for estate tax purposes if the policy is transferred within that timeframe before death. The transfer is generally irrevocable without the assignee’s consent.

In contrast, a collateral assignment is a temporary and limited transfer of rights, primarily used to secure a debt or loan. Under this arrangement, the policy owner assigns only specific rights to a lender as security, while retaining most other ownership rights, such as the ability to change beneficiaries for any remaining death benefit. If the policy owner repays the loan as agreed, the assignment is automatically terminated, and full rights revert to the original policy owner.

However, if the loan defaults or the insured passes away before the loan is repaid, the assignee (lender) has the right to claim the policy’s death benefit up to the outstanding loan amount. Any remaining death benefit, after the debt is satisfied, would then go to the policy’s named beneficiary.

Steps for Assigning a Policy

Assigning a life insurance policy requires adherence to specific procedural steps to ensure the transfer is legally recognized and effective with the insurance company. The initial step involves gathering all necessary information and documentation. This typically includes the policy number, the full legal names and contact details of both the current policy owner (assignor) and the proposed assignee. It is also crucial to clearly define the type of assignment, whether it will be absolute or collateral, as this will dictate the specific forms and legal language required.

Once this information is compiled, the policy owner must obtain the appropriate assignment form directly from the insurance company that issued the policy. These forms are standardized by the insurer and are designed to capture all the precise details of the transfer, ensuring compliance with state insurance regulations. The policy owner should carefully complete all informational fields on the form, ensuring accuracy and completeness, as errors can lead to significant delays or rejection of the assignment. The form will generally require original signatures from both the assignor and the assignee, and may also require notarization or witness signatures to verify identities and consent.

After the assignment form is fully completed and signed, it must be formally submitted to the insurance company for processing. Common submission methods include mailing the original signed form to the insurer’s policy service department or, if available, submitting it through a secure online portal. It is advisable to keep a copy of the completed form for personal records. Upon receiving the form, the insurance company will review it for accuracy and compliance. If approved, the insurer will typically issue a confirmation notice or a new policy endorsement to both the assignor and the assignee, officially acknowledging the policy assignment, which usually takes between 5 to 10 business days.