What Is Absolute Assignment?

Absolute assignment is the permanent transfer of all ownership rights in a life insurance policy from the original policyholder to another person or organization. In Canada, this means the new owner gains control over the policy, including the ability to manage its benefits, change beneficiaries where permitted, or surrender the policy.

Unlike temporary arrangements, an absolute assignment removes the original owner's control unless the new owner agrees to transfer ownership back.

How Does Absolute Assignment Work in Canada?

When a Canadian life insurance policyholder makes an absolute assignment, they transfer their ownership rights to another party, known as the assignee.

The process generally involves completing an assignment form, obtaining any required consent, and submitting the documentation to the insurance company.

Once the assignment is legally effective and recognized by the insurer, the new owner may:

• Change beneficiaries, subject to applicable restrictions.
• Access the policy's cash value, if available.
• Make decisions about maintaining or cancelling coverage.
• Transfer ownership to another eligible party.

For example, a parent in Ontario might transfer ownership of a permanent life insurance policy to an adult child as part of their estate planning arrangements.

However, transferring ownership does not automatically change who is insured under the policy.

Absolute Assignment vs. Collateral Assignment

The main difference between absolute assignment and collateral assignment is how much ownership control changes hands.

With absolute assignment, the original policyholder transfers their entire ownership interest.

Collateral assignment, however, typically gives a lender limited rights to a life insurance policy as security for a loan. The original policyholder retains the remaining ownership interest.

What Should Canadian Policyholders Consider?

Before transferring a life insurance policy, consider the following:

• Beneficiary rights: Existing beneficiary designations may be affected, and irrevocable beneficiaries may have protected rights.
• Tax implications: Transferring a policy may trigger Canadian income tax consequences, depending on the circumstances.
• Provincial requirements: Insurance rules and consent requirements can vary across Canada, particularly in Quebec.
• Loss of control: The original owner generally cannot reverse the assignment independently.

Review the policy terms and consult a qualified insurance or tax professional before proceeding.

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