Best Life Insurance Companies That Allow Assignment of Collateral (2024)
Life insurance companies that allow assignment of collateral allow you to take out a loan against the value of your life insurance policy. Collateral assignment means the lender of your loan will become the temporary beneficiary of your death benefit. Once your loan is repaid, the lender is removed from your policy.
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Jimmy McMillan
Licensed Life Insurance Agent
Jimmy McMillan is an entrepreneur and the founder of HeartLifeInsurance.com, an independent life insurance brokerage. His company specializes in life insurance for people with heart problems. He knows personally how difficult it is to secure health and life insurance after a heart attack. Jimmy is a licensed insurance agent from coast to coast who has been featured on ValientCEO and the podcast...
Licensed Life Insurance Agent
UPDATED: Nov 27, 2023
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident life insurance decisions. Comparison shopping should be easy. We are not affiliated with any one life insurance provider and cannot guarantee quotes from any single provider. Our life insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance related. We update our site regularly, and all content is reviewed by life insurance experts.
UPDATED: Nov 27, 2023
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident life insurance decisions. Comparison shopping should be easy. We are not affiliated with any one life insurance provider and cannot guarantee quotes from any single provider. Our life insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
On This Page
- Many lenders allow you to use your life insurance policy as collateral for a loan
- The lender becomes the temporary beneficiary of the death benefit on your loan
- Once the loan is repaid, the lender is removed from your policy
- If you die before the loan is paid off, the lender is repaid whatever they’re owed
When you first consider getting life insurance, it’s usually from a desire to provide financial security for your loved ones after your death. However, many people don’t realize that their policies can be used as collateral for a loan.
Companies are often excited to use a life insurance policy for collateral on a loan because they know their loan is guaranteed to be paid.
The most common type of insurance that can be used as collateral is whole life insurance. Companies often include a cash accumulation with their whole life plan.
If you’re interested in life insurance companies that allow assignment of collateral, enter your ZIP code in our free tool above to compare life insurance quotes from local companies.
Which life insurance companies allow assignment of collateral?
People have been using their life insurance policy as collateral for a long time. For many people, the use of a whole life policy for collateral is a key reason they purchase coverage.
The process is simple: a borrower offers a portion of their death benefit as a collateral assignment for a loan. This is a conditional assignment — as soon as the loan is paid, the lender is removed from the policy.
Lenders prefer using a policy as collateral because the loan is guaranteed to be repaid, one way or another. If you pass away during the term of the loan, they’ll be paid out. If you default on the loan, they can lay claim to the cash value of your policy.
Because of the nature of using your policy as collateral, most life insurance companies pay little attention to what you borrow.
Most lenders accept whole life policies as collateral, so a good place to start looking is the average life insurance rates with the best whole life insurance companies.
Here is a list of rates for $100,000 in whole life insurance for men:
Average Whole Life Insurance Rates for a Male with $100,000 in Coverage
| Companies | 50-Year Rates | 55-Year Rates | 60-Year Rates | 65-Year Rates |
|---|---|---|---|---|
| Foresters Financial | $15.31 | $20.83 | $34.04 | $43.66 |
| MassMutual | $16.97 | $24.10 | $35.50 | $61.68 |
| AIG | $17.01 | $26.62 | $38.22 | $55.07 |
| AAA | $17.78 | $22.53 | $37.14 | $59.93 |
| Mutual of Omaha | $18.88 | $27.65 | $41.67 | $59.73 |
| Assurity | $20.10 | $28.45 | $44.20 | $67.08 |
| TransAmerica | $20.21 | $30.10 | $42.66 | $71.29 |
| Prudential | $21.88 | $28.18 | $37.72 | $58.45 |
| State Farm | $26.54 | $34.45 | $51.50 | $83.09 |
| Liberty Mutual | $40.32 | $55.35 | $95.58 | $141.93 |
Here is a list of rates for $100,000 in whole life insurance for women:
Average Whole Life Insurance Rates for a Female with $100,000 in Coverage
| Companies | 50-Year Rates | 55-Year Rates | 60-Year Rates | 65-Year Rates |
|---|---|---|---|---|
| Foresters Financial | $13.13 | $17.41 | $25.46 | $34.39 |
| MassMutual | $14.62 | $20.28 | $28.19 | $42.64 |
| AIG | $15.04 | $20.96 | $25.58 | $44.93 |
| AAA | $15.40 | $18.83 | $25.61 | $37.93 |
| Assurity | $16.53 | $22.97 | $32.71 | $49.76 |
| Mutual of Omaha | $16.73 | $21.97 | $29.20 | $46.57 |
| TransAmerica | $17.46 | $25.89 | $36.98 | $59.94 |
| Prudential | $21.27 | $23.80 | $29.49 | $41.13 |
| State Farm | $23.49 | $29.67 | $40.98 | $59.51 |
| Liberty Mutual | $32.94 | $39.15 | $59.76 | $81.27 |
As you can see, the younger you sign up for a policy, the cheaper your monthly rates will be.
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What is considered the collateral on a life insurance policy loan?
The collateral of a life insurance policy loan is the simple process of assigning a lender as the temporary primary beneficiary of your insurance, making them the beneficiary of your death benefit.
The only person that can use their policy to take out a loan is the owner of the policy. That might not be the person who is insured.
For example, a husband can own a life insurance policy for his wife. In this case, the husband — not the wife — is the only person who can use it for a loan.
If you die before your loan is paid off, the lender will receive as much of your life insurance death benefit as they need to cover your loan. After the loan is paid off, the rest of your life insurance benefit goes to the original beneficiary or beneficiaries.
Once the loan is repaid in full, the lender is removed from your policy.
How to Use Your Policy as Collateral
The process of using your life insurance as collateral is surprisingly simple. Most of the paperwork is done between borrower and lender, mostly leaving the insurance company out of the process.
Once you and a lender agree on using your policy for collateral, you need to notify your insurance company. It’ll help you set the lender up as a conditional beneficiary.
That is where your insurance company’s involvement is likely to end.
Other than that, the requirements are simple. Your policy needs to stay current. Some lenders may want you to sign up for a new policy that would start at the same time as your loan, while some will work with a plan you currently have.
While there aren’t many life insurance companies that don’t allow assignment of collateral, some lending companies won’t work with a term policy.
Often, term policies don’t last as long as the loan and don’t accumulate a cash value like whole life does, which means it can’t be used in case of default.
However, if you end up buying term life, you can probably find a lender that will work with you no matter what your policy looks like.
Is using your life insurance for collateral safe?
For the most part, using your life insurance for collateral is perfectly safe. However, there is one major thing you should watch for.
Take this collateral assignment of life insurance sample as a cautionary tale:
When you go to a bank to use your policy as collateral to secure a loan, they will ask you to make them the primary beneficiary. Since that is why you’re there, you agree. The paperwork is signed, and you’ve secured your loan.
If you were to die before the loan was paid off, your entire death benefit would be paid to the bank — none would go to the people you bought the policy for in the first place.
It’s critical that you use a conditional collateral assignment. If you die before the loan is paid off with the lender as conditional and not the primary beneficiary, they are only entitled to as much money as is needed to pay off the loan.
How to Find Life Insurance Companies That Allow Assignment of Collateral
It’s exciting to know you can use your life insurance policy to secure a loan, especially since your intended beneficiaries are still protected in the future.
Affordable life insurance companies that allow assignment of collateral can provide you with the funds you need. If you’re ready to explore possible quotes, enter your ZIP code below to get started.
Case Studies: Best Life Insurance Companies That Allow Assignment of Collateral
Case Study 1: Building a Business
Jack, a small business owner, needed funds to expand his business operations. Rather than opting for a traditional loan with high-interest rates, he explored the option of using his whole life insurance policy as collateral.
After conducting research and comparing rates, Jack found a reputable life insurance company that allowed assignment of collateral. By using his policy as collateral, Jack secured a loan with favorable terms and lower interest rates, allowing him to grow his business without compromising his family’s financial security.
Case Study 2: Debt Consolidation
Emily had accumulated several high-interest debts that were becoming overwhelming. She was concerned about her financial stability and wanted to find a solution to manage her debt effectively. After learning about the possibility of using her whole life insurance policy as collateral, Emily decided to explore this option further.
She connected with a life insurance company that allowed collateral assignment and obtained a loan against her policy’s cash value. With the loan proceeds, Emily successfully consolidated her debts and improved her overall financial situation.
Case Study 3: Financing Home Renovation
John and Susan wanted to renovate their home to accommodate their growing family. However, they were hesitant about taking on additional debt through traditional home improvement loans. Instead, they discovered that their whole life insurance policies could be used as collateral to secure a loan for the renovation project.
With the help of a reliable life insurance company, John and Susan accessed the cash value of their policies and obtained a loan with favorable terms to fund their home renovation, ensuring that their family’s financial future remained protected.
Frequently Asked Questions
What does it mean to assign collateral on a life insurance policy loan?
Assigning collateral on a life insurance policy loan means using your life insurance policy as security for a loan. The lender becomes the temporary beneficiary of the death benefit, and once the loan is repaid, the lender is removed from your policy.
Can I use the cash value of my policy as collateral?
Yes, the cash value of a whole life insurance policy can be used as collateral for a loan. However, the loan amount will typically be a percentage of the cash value rather than the full amount.
Are there any restrictions on how I can use the loan obtained through collateral assignment?
In most cases, there are no restrictions on how you can use the loan obtained through collateral assignment. You can use it for any purpose, such as paying off debts, covering medical expenses, or financing a business.
Can I assign collateral on multiple life insurance policies?
Yes, you can assign collateral on multiple life insurance policies if they meet the requirements of the lender. However, keep in mind that the total loan amount will depend on the combined cash values and death benefits of all the policies.
Can I assign collateral on a life insurance policy that I don’t own?
No, you can only assign collateral on a life insurance policy that you own. If you are the insured person but not the policy owner, you will need the policy owner’s consent to use it as collateral.
Will the lender have access to my policy information?
The lender will have access to the necessary policy information for the collateral assignment process. However, they typically do not have access to your policy details beyond what is required for the loan arrangement.
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Jimmy McMillan
Licensed Life Insurance Agent
Jimmy McMillan is an entrepreneur and the founder of HeartLifeInsurance.com, an independent life insurance brokerage. His company specializes in life insurance for people with heart problems. He knows personally how difficult it is to secure health and life insurance after a heart attack. Jimmy is a licensed insurance agent from coast to coast who has been featured on ValientCEO and the podcast...
Licensed Life Insurance Agent
Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance related. We update our site regularly, and all content is reviewed by life insurance experts.