Absolute Assignment

In life insurance, what is an absolute assignment?

An absolute assignment in life insurance is the permanent transfer of ownership of the policy.

Learn more about life insurance policy assignments.

Can someone other than the insured (person covered) own a life insurance policy?

Yes!  This brings us to ownership.  Usually, when you think about life insurance you think of someone buying life insurance on their own life, right?  That is most common.  The person covered by a life insurance policy is called an insured.  The insurance company that wrote the policy is known as the insurer.  Usually, the owner and the insured is the same person.  However, someone could own a policy on someone else, such as a parent on a child.  The child is the insured, and the parent is the owner.  This is known as third-party ownership.

Are there any rights that come with ownership of a life insurance policy?Absolute Assignment

Yes, there are a bunch.  You need to know all of them before you take your life insurance licensing exam.  The owner of the policy gets to select the beneficiary, who is the person who receives the proceeds of the policy when the insured dies.  The owner can also take out a loan against the policy cash value if it is a cash value policy.  Who is responsible for paying the premium for the policy?  The owner.  The owner can also transfer ownership of the policy to someone else by making an absolute assignment.  Remember, however, that an absolute assignment is permanent.

What are some examples of situations where a policy owner would make an absolute assignment?

Well, first off, an absolute assignment cannot be made without notifying the insurer.  There is paperwork that must be filled out and signed off on.  Say an employer purchased key person life insurance on an executive, naming themselves as beneficiary.  The owner would be the employer, and the key employee is the insured.  If the key employee died, the death benefit would be paid to the company, and be used to cover lost earnings related to the loss of the employee and also the cost to retain a replacement.

Remember though, the business would be paying the premium for the policy.  So, say the employee retired, or quit.  Does the company still need the policy?  No.  They don’t need it, and most likely wouldn’t want to continue paying the premium for it.  In this case, the employer could make an absolute assignment to the employee.  If the employee accepts it, they are now the new owner, and are responsible for paying the premium, but are also able to designate the beneficiary.  They would most likely change the beneficiary from their prior employer to their spouse, or kids if they have them.

Of course, the prior employee may not want the policy.  In that case, the employer could simply cancel it.

Can you revoke an absolute assignment once enacted?

Nope!  This was mentioned previously, but let’s look at another example.  You buy life insurance for your son shortly after he is born.  Your son is the insured and you (the parent) are the beneficiary.  Life goes on and your son is now 18.  You decide to transfer ownership of the policy to him.  Once you make an absolute assignment to your son, he decides to change the beneficiary from you to his girlfriend he started dating last week.  You know, the one with the pink mohawk.  You now realize your son is not as mature as you thought and decide to take back ownership of the policy.  Can you do that?  Can you revoke an absolute assignment?  Nope.  Absolute assignments are permanent and cannot be revoked.

What else can help me prepare to pass my insurance licensing exam on my first attempt?

Other tips to help you pass your insurance licensing exam on your first attempt:

Insurance Exam Test Taking Tips

Also, check out our definition and question of the day videos on our YouTube channel:

PassMasters Insurance Exam Prep YouTube Channel