PSI Life Exam Practice Test

In a policy that is collaterally assigned, the designated beneficiary typically receives the death benefits upon the death of the insured. A collateral assignment allows the policyholder to temporarily transfer some rights of the policy, such as the right to collect the death benefit, to a third party, often as security for a loan. However, this assignment is limited, and once the obligations to the collateral assignee are fulfilled, the beneficiary retains the right to the proceeds.

This means that even though the collateral assignee may have a claim over the policy in certain circumstances, the primary intent of the life insurance policy is still to provide the death benefit to the beneficiary named in the policy. Therefore, the beneficiary is the party that receives the proceeds when the insured passes away, as long as the assignment does not explicitly override that entitlement.