What does Collateral Assignment provide?

Collateral assignment is a legal agreement where a borrower assigns a portion of their rights to a third party, typically a lender, as collateral for a loan. This arrangement allows the lender to have a claim on the benefits of a life insurance policy or certain aspects of an insurance contract in case the borrower defaults on their loan.

The correct choice relates to the fact that collateral assignment does not entail a full and permanent transfer of all rights associated with the insurance policy. Instead, it only transfers specific rights—primarily the right to receive the policy's benefits to the lender—while the policy owner retains other rights. This means that the original owner can still manage the policy, maintain it, and benefit from it until the loan is repaid.

Understanding this concept is crucial for both producers and clients, as it highlights how collateral assignment functions in protecting financial interests while still allowing the policyholder to retain control over their policy.