Difficulty: Hard

Average Score: 47%

Under the absolute assignment of a life insurance policy:

Rationale

All incidents of ownership are transferred to the assignee.

In an absolute assignment of a life insurance policy, the original policy owner relinquishes all rights and privileges associated with the policy to the assignee, effectively transferring ownership. This includes the right to change beneficiaries, receive cash value, and make any decisions regarding the policy.

A (all incidents of ownership are transferred to the assignee) CORRECT

This statement accurately reflects the nature of absolute assignment, where the original policy owner gives up full control and rights to the policy, granting them entirely to the assignee. This transfer includes all decision-making powers and benefits associated with the policy.

B (the original policy owner may change the beneficiary designation) YOUR ANSWER

This choice is incorrect because, in an absolute assignment, the original policy owner no longer retains the authority to change beneficiary designations. Once the policy is assigned, such rights are entirely transferred to the assignee, who now holds the power to make those changes.

C (all debts owed to the insurance company are canceled) YOUR ANSWER

This option is misleading, as an absolute assignment does not cancel any debts associated with the policy. Any outstanding premiums or loans taken against the policy remain the responsibility of the policy owner unless explicitly stated otherwise in the assignment terms.

D (the original policy owner is entitled to receive the cash value of the policy) YOUR ANSWER

This choice is incorrect because, following an absolute assignment, the original policy owner loses entitlement to the cash value. Instead, the assignee becomes the new owner and is entitled to any cash value benefits from the policy.

Conclusion

In summary, an absolute assignment of a life insurance policy transfers all incidents of ownership to the assignee, including rights to make changes and receive benefits. The original policy owner relinquishes control, which is crucial in understanding the implications of such an assignment, as they no longer retain rights to change beneficiaries, access cash value, or cancel debts associated with the policy.

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