Are you looking for a way to secure a loan, but do not have the credit rating or typical collateral in order to do so?
Then you might want to consider the assignment of life insurance policy as collateral for a loan.
This relatively new field in the obtainment of loans uses your own life insurance policy as the means for you to obtain the type of loan you want.
The collateral assignment of life insurance policy proceeds is a relatively simple one, but there are a few steps that need to be taken before you can take full advantage of this method.
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Finding Insurance Companies That Allows Collateral Assignment
The first question before the assignment of a life insurance policy as collateral for a loan can be processed is whether your life insurance company will allow it to happen.
Many of them do have specific requirements and they need to be followed for the collateral assignment of life insurance policy can take place.
If the answer is no, at least you can eliminate that method of obtaining your loan and in the future obtain a life insurance policy that will not have these restrictions.
Most of the insurance carriers that we work with do allow for collateral assignment of your policy as long as you identify a lender that will accept it.
There are companies out there that specialize in working with both lenders and life insurance companies that can help you obtain the goal of collateral assignment of a life insurance policy for the purposes of getting a loan.
In most cases, they follow a step-by-step approach that starts with contacting the lender to see what type of life insurance qualifies as collateral. The company will ensure getting the exact wording necessary so that the next step can be taken.
Now you apply for the life insurance that qualifies for the loan, in some cases it may not need a medical exam which generally is more expensive but can be done in a few days or it may require an exam and be fully underwritten which is less expensive but takes a few weeks.
If you currently have a policy that qualifies for the assignment of a life insurance policy as collateral for the loan, then this step can be avoided.
Lender Accepting the Insurance Policy Proceeds as Collateral
The lender will now accept the life insurance as collateral for your loan, usually, they are consulted beforehand to ensure that all the wording and legal language requirements are met and that the application is essentially approved before it is sent in to avoid any unwanted surprises.
Once it is approved, the forms are signed by both the lender and the life insurance company so that the process can take the final step of providing you with the loan that you need.
Sample Collateral Assignment Form
This rather straightforward process can be quite technical in nature and needs an experienced, knowledgeable company to make the transaction work so that you can get the loan you desire while satisfying the needs of both the lender and the life insurance company.
This way, all the potential problems are ironed out beforehand and you get the loan you want.
If you are looking for another method to obtain a loan, then using your life insurance policy proceeds or having one drawn up can be the way to get what you need.
Collateral Assignment Example
We recently had a real estate developer who needed a $4 million term life policy to cover his bank loans. He needed to get his life insurance fast, so we went with the carrier we felt would issue the quickest based on his situation.
Within 4 weeks the policy was in force and he was completing the collateral assignment forms to hand over to his banks. Keep in mind that the assignment forms do not need to be completed until after you receive your policy from the insurance company.
Life Insurance for Your Family
The idea of using a life insurance policy as collateral is relatively new. These plans are an excellent way to secure a loan that you wouldn’t be able to get otherwise.
One thing to always be aware of is the life insurance protection that you’re giving your loved ones. Life insurance plans are a great way to close a loan, but that’s not the main reason for these plans.
Regardless of why you’re buying life insurance, there are plenty of options for you to choose from. If you want the cheapest, you should buy a term plan with a medical exam.
The required medical exam is pivotal in deciding how much you pay. The better results that you get from the medical exam, the lower your insurance rates are going to be.
The Bottom Line – Collateral Assignment of Life Insurance Policy Proceeds
Utilizing life insurance policies as collateral for loans offers a novel approach to secure financing, especially when traditional avenues might be inaccessible.
Engaging with knowledgeable professionals in both insurance and lending spheres ensures a seamless transaction that respects the policy’s intent.