What Is the Assignment of Insurance Benefits?

Assigning insurance benefits is a legal procedure that gives another party permission to receive payments or benefits directly from your insurance company rather than you receiving the benefits yourself. Depending on the arrangement, you may be able to terminate the assignment at will, or be required to keep the arrangement in place until you meet certain conditions.

Health Insurance

When you require medical care, it's important to have health insurance in place to protect your financial well-being. If your health care provider does not have a direct contract with your insurance company, it may require you to fill out an assignment of benefits form allowing it to bill the insurance company directly for your medical treatments. You remain responsible for any deductibles and co-pays, however, and are ultimately responsible for any medical bills.

Income Loan

Whole life insurance policies with accumulating cash values can act as supplementary retirement income planning investments. When you wish to access the cash value in your policy, you can assign your policy to a bank in exchange for a loan. Typically the bank lends you up to a specified percentage of the policy's cash value, and it becomes the primary beneficiary of the death benefit up to and including the outstanding balance of the loan at your death. The advantage of such an arrangement is that the bank loan is not treated as taxable income, unlike a policy withdrawal, and you repay the bank loan with the tax-free death benefit.

Collateral Loan

If you are self-employed and wish to secure a loan for your business, you may be required by your lenders to purchase life insurance as an additional guarantee. Once the insurance is purchased you complete a assignment of benefits, sharing ownership control with the bank. You must pay the insurance premiums and cannot make any decisions affecting the policy without the written consent of the lender. If and when you pay off your business loan, the assignment is terminated and you regain full control of the policy.

Charitable Contribution

Life insurance can be purchased as a means to finance a charitable gift at death. There are several ways to set this up, one of which involves assigning the benefits to the charity immediately after purchase. The assignment is typically irrevocable, as this requires the charity's consent to make any changes to the policy. The advantage of such an assignment is that your premiums are tax-deductible as a charitable contribution. Upon your death, the charity receives the death benefit directly, without the money passing through your estate.

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About the Author

Philippe Lanctot started writing for business trade publications in 1990. He has contributed copy for the "Canadian Insurance Journal" and has been the co-author of text for life insurance company marketing guides. He holds a Bachelor of Science in mathematics from the University of Montreal with a minor in English.

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