Which lenders offer collateral assignment loans?

Posted: Tue Jan 05, 2010 03:43 pm Post Subject:

Lots of lenders will in general. The problem that you have is that they still have to believe that you are going to pay off the debt. What happens when you don't pay the debt and the policy lapses?

A collateral assignment is used when the bank expects to get paid back, but understands that death might stop this from happening. Often what happens is that the bank will make a loan, but only on the condition that there is a collateral assignment of a life insurance policy.

Posted: Tue Jan 05, 2010 08:42 pm Post Subject:

Lots of lenders will in general. The problem that you have is that they still have to believe that you are going to pay off the debt. What happens when you don't pay the debt and the policy lapses?

A collateral assignment is used when the bank expects to get paid back, but understands that death might stop this from happening. Often what happens is that the bank will make a loan, but only on the condition that there is a collateral assignment of a life insurance policy.

Posted: Wed Jan 06, 2010 07:09 am Post Subject:

Chrissy . . .

Complicating your desire is the fact that your policy is a term life contract. If the remaining term is shorter than the repayment period of a loan, it will not be satisfactory collateral. But, as the other have said above, if everything is in order, and you appear to have the ability to repay, a lender should not be reluctant to accept a collateral assignment of life insurance proceeds.

Unfortunately, the banks today are overly cautious about lending, lest they be forced to sell more shares to Treasury.

Posted: Tue May 25, 2010 12:27 am Post Subject: Collateral Assignment Loan

I have a whole life insurance policy valued at over $243k that I have maintained since 2002. It barely has any cash value at this point as I have withdrew from it over the years for emergency purposes and I now want to use it to eliminate debt. Major banks and credit unions don't give secured personal loans anymore and I can't find any lenders who do collateral assignment loans AGAINST life insurance policies in New York. My insurer provides the collateral assignment form, but don't do the loans. Any guidance would be appreciated.

Posted: Wed May 26, 2010 04:41 pm Post Subject:

You are most likely out of luck unless you seek out a "life settlement" company that will purchase your policy from you. They become the owner and will change themselves to the beneficiary.

You could expect to receive $0.30-$0.50 per dollar of death benefit minus the current unpaid loans and interest on the policy.

Should never have used the cash value from your policy.

Posted: Wed May 26, 2010 05:21 pm Post Subject:

A life settlement comes with a lot of conditions that you must meet first, bare in mind.

And, if there is not cash in the policy to speak of, the life settlement offer could be extremely low.

Should never have used the cash value from your policy.

Posted: Wed May 26, 2010 08:04 pm Post Subject:

Max, you do realize that you just told the guy that he could get $80,000 less loans and interest (which should be fairly small)?

A life settlement on this policy would be much closer to $1.

Posted: Wed May 26, 2010 11:54 pm Post Subject:

No argument. Just providing the raw fact that his only option might be a life settlement. It would be up to him to find out what value his particular situation would provide. We have no indication what his CV was prior to borrowing so heavily, or what his age is.

So while $80,000 - $120,000 is entirely unrealistic, given the fact that there is no essential cash value, I wouldn't necessarily agree that his policy is worth only $1 (it certainly would be closer to $1 than to $80,000). We know that most life settlement companies are probably not interested in a $243,000 policy either.

Posted: Fri May 28, 2010 05:06 am Post Subject:

Guys, don't miss the point.

The "collateral" in a life insurance policy IS the cash value. If there's no cash value, there's no collateral. Having someone purchase the death benefit has nothing to do with the collateral.

By entering into a collateral assignment, you're essentially putting a lien on the cash value equal to the amount of the debt. It's similar to a life insurance policy loan, except outside the insurer. Kind of like putting up your savings account as collateral against a bank loan.

I don't know if the problem's the fact that there is no collateral left in the policy due to prior withdrawals or that there simply aren't lending institutions that do these kind of loans. My hunch is the former, as I know plenty of banks that do loans based on collateral assignments other than life insurance, on both personal and real property. A mortgage is essentially a collateral assignment; they just use different words in that biz.

InsTeacher 8)

Posted: Fri May 28, 2010 09:33 am Post Subject:

InsTeacher, you are 100% correct if we are talking about needing the cash to be able to get the loan.

However, sometimes the concern is not with the loan being paid off in general, but whether the loan will be paid if death occurs. A collateral assignment will be done in these circumstances also, and there is no need for the policy to have cash. ( I know that you know this. It is for the benefit of others.)