Life Insurance Assignment

• When you borrow money from a bank, the bank may require under the terms of the loan agreement that you buy life insurance to help repay the loan principal in the event of your untimely death.
  
  

Assignment Specifications

• Initially you own the life insurance contract. When you assign it to the bank, you basically legally stipulate that the bank temporarily becomes the first payee of the insurance proceeds at your death. The insurance company will pay the bank first a portion of the insurance proceeds not to exceed the amount of the loan outstanding.
  
  

Your Rights and the Bank's Rights

• During the assignment period, the bank has no legal ownership rights to the insurance contract. You continue to own the contract and make the decisions. However, the assignment agreement stipulates that you cannot cancel or reduce benefits without the prior consent of the bank.
  
  

Ending the Assignment

• When you repay the loan in full, the assignment is dissolved and the bank can no longer receive any of the insurance proceeds.