Assigning a Life Insurance Policy: What You Need to Know

Yes, a life insurance policy can be assigned to another person or entity, but the process requires a written assignment that complies with state law and the insurer's rules. The owner must sign the assignment, name the assignee, and often provide proof of the assignee's eligibility, after which the insurer updates its records and recognizes the new owner.

How Assignment Works

When a policyholder assigns a policy, they transfer ownership rights, including the ability to change beneficiaries, borrow against cash value, and receive the death benefit. The assignee steps into the original owner's shoes and assumes all responsibilities, such as paying premiums.

Types of Assignments

There are two common forms:

• Absolute assignment – a complete transfer of ownership with no conditions.
• Collateral assignment – the policy is used as security for a loan; the original owner retains control unless the loan defaults.

Legal Requirements

To be valid, an assignment must be:

• In writing, signed by the policy owner.
• Specific about the policy number, assignor, and assignee.
• Accepted by the insurance company, which may require additional documentation.

Some states require notarization or witnesses, so checking local regulations is essential.

Impact on Beneficiaries

The assignee can change the beneficiary designation unless the policy includes a irrevocable beneficiary clause. If an irrevocable beneficiary is named, the owner cannot assign the policy without the beneficiary's consent.

Tax Considerations

Generally, transferring a policy is not a taxable event, but if the policy has a cash value, the assignment could trigger gift tax rules if the value exceeds annual exclusions. Consulting a tax professional is advisable.

Steps to Complete an Assignment

1. Review the policy's terms for any restrictions.2. Draft a written assignment that includes all required details.3. Have the document signed, notarized if required.4. Submit the assignment to the insurer and request an endorsement on the policy.5. Confirm that the insurer has updated the ownership records.

When Assignment May Not Be Allowed

Insurance contracts may prohibit assignment to certain parties, such as competitors, or may limit assignments that affect the insurer's risk assessment. Additionally, policies with an irrevocable beneficiary cannot be assigned without that beneficiary's written consent.