Collateral Assignment: Using Whole Life Cash Value as Loan Security

One powerful, yet underutilized, feature of the cash value in a Permanent Life policy is its ability to be used as collateral for external loans. This process is called **Collateral Assignment** and is common in business finance and banking.

What is a Collateral Assignment?

When you take a loan from a bank (e.g., a business loan or line of credit), the lender can request that you “assign” a portion of your life insurance death benefit and cash value to them. This provides the bank with security. Key aspects:

• Security for the Lender: If you default on the loan, the bank has the right to access the policy’s cash value up to the amount owed. If you die, the bank receives the outstanding loan balance from the death benefit first.
• You Retain Ownership: You still own the policy, and any cash value beyond the loan balance remains yours. Your beneficiaries receive the death benefit minus the outstanding loan balance.

Benefit for Policyholders

Using the cash value as collateral often allows the policyholder to secure more favorable loan terms (lower interest rates or higher loan amounts) than they would otherwise qualify for.

Disclaimer: This content is for informational purposes only and is not financial or legal advice. Collateral assignment is a legal process; consult your lender and insurance agent thoroughly before signing the assignment document.