LLQP Life Insurance · Component 4.1 · 10% of the exam
A collateral (partial) assignment differs from an absolute assignment in that:
- AIt transfers ownership permanently to the lender, which holds the policy until the insured dies and then pays the family the balance
- It gives a lender a security interest up to the debt, with ownership staying with the policyholder
- CIt cancels the beneficiary designation, so the proceeds are paid to the lender and then to the estate
- DIt changes the life insured to the lender's nominee, so the lender can control when the policy pays
Correct answer: B) It gives a lender a security interest up to the debt, with ownership staying with the policyholder
Under a collateral assignment the lender is paid first from the death benefit or cash value, and the balance goes to the beneficiary. It is the mechanism behind leveraged insurance and business loans secured by policies.
Why the other options are wrong
- ACollateral assignment does not transfer ownership.
- CIt does not cancel the beneficiary; the beneficiary receives the balance after the lender.
- DIt does not change the insured.
Exam tip
Collateral assignment: lender paid first up to the debt, then the beneficiary; ends when the loan is repaid.
Common mistake
Assuming a collateral assignment removes the beneficiary permanently.
What this tests
CISRO competency component 4.1 — Provide customer service during the validity period of the coverage — which is weighted at 10% of the Life Insurance module. Written against the published curriculum.
More from component 4
- After a policy is reinstated, the contestability period:
- A revocable beneficiary designation is changed by:
- A client asks the agent to hold the beneficiary change form 'until next week' and dies in the meantime. The consequence is that:
- A client wants to reduce the face amount of her policy because her needs have fallen. The agent should note that:
- A client is unable to pay premiums temporarily on a whole life policy. Before letting it lapse, the agent should suggest:
- A client's term policy is being replaced with a new one from another insurer because it is cheaper and he remains healthy. To protect the client, the agent should ensure that:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.