What term describes the action taken by a policyowner when using a life insurance policy as collateral for a loan?

The action taken by a policyowner when using a life insurance policy as collateral for a loan is referred to as collateral assignment. This term specifically describes the process whereby the policyowner temporarily assigns rights or benefits of the life insurance policy to a lender as security for the loan. In the case of default on the loan, the lender has the right to claim the death benefit or cash value of the policy to recoup the owed amount.

Collateral assignment is often used because it allows the policyowner to retain ownership of the policy while securing a loan, making it a common practice in financial transactions. The assignment is typically revocable, meaning once the loan is repaid, the rights can revert to the original policyowner.

The other terms mentioned do not accurately describe this specific action. For instance, loan assignment suggests a transfer of responsibilities related to the loan itself, while policy surrender refers to the policyowner canceling the policy for its cash value. Premium assignment is unrelated, as it involves the payment method for policy premiums and does not pertain to using the policy as collateral.