A collateral assignment is the practice of pledging a life insurance policy as collateral for a loan. The practice is not necessarily a bad thing, but it can become a nightmare if you forget to notify the life insurance company that the loan was paid off.
I recently had a wonderful friend and client pass away. Over the years, we had done a great job making a concise list of active life insurance policies and throwing away expired policies and paperwork. The client was a business owner and had used life insurance for various purposes over the years, so it was quite a chore to sort through everything, but we got it done.
Unfortunately, one of the policies that was active at his passing had a collateral assignment from years back that had never been released. To make matters worse, the bank that carried the loan is no longer in business. A life insurance company can not, and will not, release a death benefit on a policy with a collateral assignment, unless it receives notice from a bank that the loan has been paid. The surviving spouse, who is also a good client and friend, has speny hours upon hours on phone call after phone call, trying to get the life insurance claim paid without success so far.
I am confident that, at some point, she will be paid. This can't be the first time this has ever happened. However, this is not the way we want to spend our time when dealing with the death of a loved one.
This is just one of just many examples of why it's very important to have periodic life insurance reviews. If you haven't had a thorough review of your life insurance in a while we can help.