which banks do collateral assisgnment

by Guest » Wed Jul 18, 2012 07:01 pm
Guest

I have a primerica life insurance policy, I wanted to know which banks will help me in this matter.

Total Comments: 8

Posted: Thu Jul 19, 2012 01:13 am Post Subject:

With term life insurance, unless the loan term is shorter than the remaining term on your life policy, you are unlikely to be able to obtain a loan based on a collateral assignment of your policy from any bank. There may be private parties who are interested, but you'd have to go looking for them yourself.

Posted: Thu Jul 19, 2012 03:23 pm Post Subject:

Max, the loan term is almost always going to be shorter than the remaining term on the life policy.

That being said, the person has almost no chance of being able to use it for a collateral assignment. Life insurance is typically used for a collateral assignment for a loan when the lender is concerned about what will happen if the person dies.

It won't help the lender get their money if the person is alive, so they need to be completely credit worthy without the policy.

Posted: Fri Jul 20, 2012 06:47 am Post Subject:

the loan term is almost always going to be shorter than the remaining term on the life policy.


Well, yes.

Life insurance is typically used for a collateral assignment for a loan when the lender is concerned about what will happen if the person dies.


Well, yes.

It won't help the lender get their money if the person is alive, so they need to be completely credit worthy without the policy.


Well, yes.

But that's not necessarily the point. A bank could make life insurance a condition of borrowing the money (as is the case with credit life insurance, often sold to young [mostly male] persons who buy automobiles and motorcycles). In that case, the bank's policy is probably a single premium term policy equal to the length of the loan. But it doesn't have to be.

The person could be completely creditworthy but not have any collateral to secure the loan (let's forget the business of buying cars, and consider someone trying to start a business). Life insurance could be the answer to their collateral need. But a 20-year term policy with only 5 years to end of term would not work for someone who is borrowing money for a 10-year period.

On the other hand, a WL policy would work because the lender, in a worst case scenario, would have the right to continue making the premium payments on the policy if the borrower failed to make them (preventing a policy lapse in order to protect their collateral interest), and the lender's "interest as it appears" in the death benefit would be increased by the amount of premiums they paid, offset only by the amount of loan repayments the borrower made. (The same is true of an irrevocable beneficiary, such as an ex-spouse, who has a vested interest in the death benefit.)

While the lender might have charged off a loan as uncollectible, and while it might have to wait many years for the insured to die in order to collect on that policy, a collateral assignment is the only superior claim to policy proceeds than that of the beneficiary. The lender would eventually collect, even if the policy "endowed" at age 100 or 121 and the cash value is payable to the policyowner. (I realize that's a pretty obscure possibility.)

But that same scenario is unlikely to happen with a term policy (the lender would not be interested in paying the higher premiums over time), and probably wouldn't happen with a "plain vanilla" (i.e., without guarantees) UL policy either (for exactly the same reason).

Posted: Fri Jul 20, 2012 03:39 pm Post Subject:

The bank makes life insurance contingent on the loan because they are concerned about getting paid back if death occurs.

Life insurance, even whole life, won't be the answer to needed collateral because even though the insurance company could make premium payments and collect sometime in the future, that isn't what they want to do.

So, insurance may be needed, but it won't be acceptable collateral unless there is already enough cash in the policy.

As for the OP, she sounds as if she wants to borrow money and is hoping that her term policy will allow this to happen. It won't.

Posted: Fri Jul 20, 2012 10:18 pm Post Subject:

As for the OP, she sounds as if she wants to borrow money and is hoping that her term policy will allow this to happen. It won't.


Agreed.

So, insurance may be needed, but it won't be acceptable collateral unless there is already enough cash in the policy.


This is a fundamental misunderstanding of collateral assignment. The assignment has nothing to do with the cash value, it is a lien against the death benefit. Only the policyowner can access the cash value.

As it says, the COLLATERAL is the amount of insurance death proceeds. If they are encumbered by loans against the cash value, that diminishes the amount available to the person who has been assigned the death benefit in whole or in part. The available "collateral" has been impaired.

In true credit life insurance, the lender is the beneficiary, and does not have a collateral assignment. The insurance is terminated when the loan is extinguished.

Life insurance, even whole life, won't be the answer to needed collateral


If this is true, then what is the purpose of a collateral assignment? Please explain your faulty reasoning. At least you are not being totally unreasonable.

Posted: Fri Jul 20, 2012 11:00 pm Post Subject:

If a lender doesn't trust the credit worthiness of the borrower, life insurance won't make good collateral because the lender isn't protected if the borrower lives happily ever after.

A collateral assignment of a life insurance policy is needed when the lender does expect to be repaid, but is concerned about getting repaid if the borrower dies prematurely.

Ex. Dr. Smith has purchased the dental practice of Dr. Jones. He is paying $100,000 for the next 5 years. Dr. Smith is getting this money from the earnings that he'll make taking over for Dr. Jones. Dr. Jones is retiring.

Dr. Jones knows that the practice is successful enough that Dr. Smith can easily pay him. However, if Dr. Smith dies, he won't be able to pay his debt to Dr. Jones. A collateral assignment of the life insurance solves this problem.

Posted: Sat Jul 21, 2012 02:13 am Post Subject:

If a lender doesn't trust the credit worthiness of the borrower, life insurance won't make good collateral because the lender isn't protected if the borrower lives happily ever after.


Of course the lender is protected -- up to the full amount of the life insurance death benefit. The collateral assignment solves this, too. When the insured eventually dies, the lender -- collateral assignment in hand -- enforces his claim, with all the unpaid interest included. That could be more than the value of the policy, but it would still give the lender a claims payment of the full death benefit. The beneficiary's interest is secondary to the collateral assignment.

Now, I'll agree that creditworthiness is part of the equation, and if the lender had serious concerns about repayment, even if the borrower had tremendous collateral apart from life insurance, he might not get the loan.

But as far as the collateral assignment, I don't know why you are so confused.

Maybe the person needs an operation that their health insurance won't cover, the hospital and/or doctor could take collateral assignments of the death benefit. If the insured lives a nice long happy life, the hospital and doctor will probably have been paid what they're owed. If not, they can collect on the death claim when the insured eventually dies. There is no difference in these two outcomes.

And the person who has a collateral assignment . . . they can always sell that to someone else, too. Just a paperwork thing as far as the insurance company is concerned.

Posted: Sun Jul 22, 2012 10:36 am Post Subject:

Max,

Why do you think that I'm confused? I understand that the lender could just keep the policy, pay all the premiums and eventually collect.

The point is that this isn't what they want to do. The lender doesn't want to wait 50 years to get their money back. The lender doesn't want to have the expense of premium payment.

With very rare exception, life insurance is only used as collateral in incidences when the lender is concerned about repayment due to early death. If the lender is concerned about repayment if the person lives happily ever after, life insurance won't be adequate collateral.

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