What is 'assignment' in life insurance?

The term 'assignment' in life insurance refers to the legal transfer of a policy's benefits from one individual to another. This means that the policyowner can designate another person or entity to receive the benefits of the insurance policy. Assignments are often used in situations like securing a loan, where a policyowner can assign the policy to a lender as collateral, ensuring that the lender receives the benefits if the policyowner passes away.

This concept is central to understanding how life insurance can be part of various financial planning strategies and legal arrangements. For instance, if an individual wants to guarantee that a certain sum will be paid to a specific person or entity, they can execute an assignment to make that arrangement legally binding.

The other choices involve concepts not aligned with the definition of assignment in life insurance. While they concern different aspects of policy management, they do not capture the essence of what it means to assign a policy. Understanding this legal transfer of benefits is crucial for both policyholders and beneficiaries in navigating their rights and responsibilities regarding life insurance.