PSI Life Exam Practice Test 2025 - Free Life Insurance Exam Questions and Study Guide

Question: 1 / 400

When does a "collateral assignment" typically occur?

During the renewal of a life insurance policy

When a loan is secured using the death benefit

A "collateral assignment" most commonly occurs when a loan is secured using the death benefit of a life insurance policy. This process involves the policyholder assigning part or the entirety of the death benefit to a lender as collateral for the loan. This means that if the policyholder were to pass away before repaying the loan, the lender would have the right to receive the amount owed directly from the death benefit, ensuring that their financial interests are protected.

During the initial enrollment for life insurance, renewal of a policy, or upon reaching retirement age, a collateral assignment is typically not relevant or necessary. Those situations do not directly involve using the death benefit as collateral for a loan, which is the key aspect that distinguishes a collateral assignment.

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Upon the insured reaching retirement age

During the initial enrollment for life insurance

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