Minnesota Life Insurance License Practice Exam

Which provision allows a person to temporarily give up a portion of their rights to secured assets?

1. Subordination

2. Collateral assignment

3. Transfer of ownership

4. Mortgage agreement

The correct answer is: Collateral assignment

The correct choice reflects the concept of a collateral assignment, which allows an individual to temporarily relinquish certain rights to secured assets, usually to a lender or creditor, as a way to secure a loan or obligation. In a collateral assignment, the borrower pledges specific rights or interests—for instance, in a life insurance policy or other assets—to the lender. This arrangement enables the lender to become a temporary claimant to those rights if the borrower defaults on the loan, while the original owner retains other ownership benefits. This mechanism is particularly useful in financial transactions where security is required to minimize risk for the lender while allowing the borrower a level of continued control over their assets. It is important to distinguish this from other options, which do not serve the same function; for instance, a subordination typically refers to a ranking of claims rather than the temporary transfer of rights. A transfer of ownership indicates a complete shift of title and rights, while a mortgage agreement formalizes a loan secured by property but does not specifically designate the temporary relinquishment of rights as does a collateral assignment.