What are the two types of assignments in life insurance?

In the context of life insurance, the two types of assignments are known as absolute and collateral assignments.

An absolute assignment refers to the complete transfer of ownership of a life insurance policy to another individual or entity. In this scenario, the new owner has full rights to the policy, meaning they can make changes, receive cash value, and designate beneficiaries without any restrictions from the original policyholder.

On the other hand, a collateral assignment is usually temporary and involves using the policy as collateral for a loan. In this case, the original policyholder retains ownership, but a portion of the policy's benefits is pledged to the lender. If the policyholder defaults on the loan, the lender can receive the death benefit up to the amount of the outstanding loan.

Understanding these terms is crucial for both policyholders and beneficiaries, as it impacts the ownership rights and claims process regarding life insurance policies.