Understanding the FEG‑LI Assignment of Life Insurance Policies

What the FEG‑LI Assignment Does

The FEG‑LI (Financial Entity Group‑Life Insurance) assignment transfers the ownership and beneficiary rights of a life insurance policy from the original holder to a designated entity, typically for corporate or estate planning purposes. This move lets the assignee receive the death benefit directly, simplifying cash flow, protecting assets, or meeting loan collateral requirements.

Key Reasons to Use an Assignment

Companies often assign policies to secure financing, as lenders can claim the benefit if a loan defaults. Individuals may assign policies to a trust to avoid probate, ensure tax‑efficient distribution, or provide a steady income stream to dependents.

How the Assignment Is Structured

Two primary structures exist:

• Absolute Assignment – Full ownership transfers; the original owner loses all rights.
• Collateral Assignment – Ownership remains with the original holder, but a creditor holds a security interest.

Both require a written assignment form, the insurer's acknowledgment, and often a notarized signature.

Tax Considerations

Generally, the death benefit remains income‑tax free for the assignee. However, if the assignment is considered a transfer for value, the policy may become a taxable event under the Internal Revenue Code Section 101(a). Collateral assignments typically avoid this issue because ownership does not change.

Impact on Policy Features

Assigning a policy can affect:

• Cash Value Access – The assignee may gain the right to borrow against the cash value.
• Premium Payments – Responsibility may shift to the assignee, depending on the agreement.
• Policy Riders – Some riders, like accelerated death benefits, may be limited if the assignee is a creditor.

Steps to Complete a FEG‑LI Assignment

1. Review the policy's assignment clause.2. Choose absolute or collateral assignment based on goals.3. Draft the assignment document with clear parties, policy details, and effective date.4. Obtain insurer's written consent; many carriers require a specific form.5. File the signed assignment with the insurer's records department.6. Notify any relevant lenders or trustees of the change.

Potential Pitfalls

Improper documentation can leave the assignment unenforced, especially if the insurer does not acknowledge it. Additionally, assigning without considering state probate or inheritance laws may create unintended tax exposure for beneficiaries.

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