Nebraska Life and Health Insurance Practice Exam 2025 – Complete Exam Prep

Collateral assignment in life insurance specifically allows policyholders to assign the death benefits of their policy to a creditor as collateral for a loan. This mechanism provides a way for the policyholder to secure a loan by using the life insurance policy as a guarantee that the creditor will be repaid in case the policyholder passes away before the debt is settled.

When a collateral assignment is established, the creditor has a claim to the death benefit, but the policyholder retains ownership of the policy and can still change beneficiaries or make adjustments as they see fit, as long as those actions do not violate the terms of the collateral assignment. This form of assignment is limited in scope, ensuring that the policyholder still maintains control over the insurance policy while effectively using it as a financial tool to secure loans.

Other options in the question represent different aspects of life insurance. For instance, borrowing against a policy’s cash value relates to accessing the funds that have accumulated within a permanent life insurance policy but does not involve assigning the policy to a creditor. Transferring the policy to a new owner refers to an outright assignment of ownership, which is distinct from collateral assignment. Finally, changing beneficiaries without consent generally applies to internal provisions of life insurance policies but is not an aspect tied specifically to