What does collateral assignment mean in life insurance?

Collateral assignment in life insurance refers to a financial arrangement where the policyholder uses the death benefit of the insurance policy as collateral for a loan. This means that if the policyholder takes out a loan and secures it with their life insurance policy, the lender has a claim to the death benefit if the borrower fails to repay the loan. This type of assignment helps lenders ensure that they will recover their funds by having access to the policy's death benefit.

When a collateral assignment is made, the policyholder retains ownership of the policy and can still name beneficiaries. However, the lender's interest in the policy must be addressed, particularly in the event of the policyholder's death. This arrangement is commonly used by individuals needing financial assistance while providing security to the lender.

The other options describe different aspects of life insurance or related activities that do not align with the concept of collateral assignment. For instance, managing benefits for beneficiaries, assigning benefits to a charitable organization, or strategies for lowering policy premiums do not involve the specific use of the death benefit as collateral for a loan, which is the defining feature of collateral assignment.