Are The Policy Beneficiaries Protected?

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Anyone making car payments knows the automobile is not “totally their own.” The vehicle secures the loan made to purchase the car and the lender has “first dibs” on money raised if the car Is sold for non-payment, any balance going to the borrower. Sounds cut-and-dried, but just a few years back a $30,000,000 class-action judgment was levied against a bank for false excess claims made against creditors upon repossession and sale.

The same wrongdoing can occur to a policy beneficiary when a collateral assignment secures a creditor.

And carriers can differ dramatically in their procedures for allocation and distribution of the death benefit to the assignee and the beneficiaries!

So, consider:
  • Will the beneficiaries even know the policy is collaterally assigned? – If not told by the owner, they may not. They have no rights in the policy until the death of the insured.
  • Will the beneficiaries know when a death claim has been filed? – The assignee can often file the claim with no notice to others.
  • What proof-of-claim must an assignee submit for a distribution? – Beneficiaries often have no access to records of the secured transaction.
  • Will the beneficiary have a chance to object to a claim before an assignee is paid? – Beneficiaries often have no assurance of prior notification.
  • Will the beneficiary be paid directly by the carrier, or through the assignee? – Some carrier forms direct the full benefit be paid under the collateral assignment leaving the assignee responsible to pass on the overage.

How distribution will be handled should be determined and discussed with all parties before an assignment is put in place.

Whenever a collateral assignment is considered, whether on a new or an existing policy, we will help you and your client determine the rules of play and help communicate them to all affected. Contact Tom Virkler, JD, Director of Advanced Markets, at tom@cpsadvancedmarkets.com or (706) 614-3796.

For What It’s Worth – The annual average numbers of car repossessions in the U.S. is 2,200,000. Between 16-17% of monthly car payments made are over $1,000!