What to do with an Assignment of Benefits

Thea Dudley


Dear Thea,

- Sponsor -

Is an Assignment of Benefits of a life insurance policy exempt as an asset in bankruptcy? Our company took an Assignment of Benefits of a life insurance policy on our customer’s company. The business is now dissolved, and we have an option to cash out the life insurance policy. If we choose to move forward and cash it out it is worth half of what the death benefit would be. If we wait, we can recover more of what is owed. However, if we wait and the customer files for bankruptcy at some point, would the trustee come after the life insurance asset if it is assigned to us?

To sum it up: Is it better/safer to cash out now or are we safe keeping the assignment if we decide to wait until he is deceased to receive the full death benefit amount?

— Assigned but not Signed in Sin City


Dear Assigned,

When I was a kid, my dad would take me fishing. Not because I liked fishing or I was good at it— I was not; I didn’t want to be the reason a worm died, didn’t want to touch the creepy-feeling fish, and I have never been a fan of peeing in the woods. He took me because he said I was “lucky.” Whenever he took me fishing, I always caught a ridiculous number of fish despite my efforts to avoid success. After a while, he would just hang out with me, waiting for the next fish to bite, coaching me on reeling it in, and then taking it off the hook for me.

During this time, he would attempt to impart wisdom in the guise of teaching me fishing. He used to say, “Jigging the fish is easy, after that you have to pull him in.” Basically, the hook is in, now comes the hard part.

Same with your situation. How are you going to hook your customer and once you do, how do you pull him in? Without seeing the exact language of the assignment agreement, it is hard to give an opinion on that. If the life insurance is not property of the estate, then the bankruptcy would not affect your claim.

The challenge, and possible answer, may lie in your agreement. If the language of the assignment agreement does not clearly spell it out, and the life insurance policy is deemed property of the estate, you will lose out. Depending on what you find—or don’t find—may influence your decision to cash out sooner instead of waiting it out.

One factor that you didn’t mention, and I cannot be the only one who is thinking this: How long are you planning on carrying this debt on your books? With the business being dissolved and you holding the Assignment of Benefits, I am led to believe this is how the account is going to be paid. Which brings us back to the obvious: How long are you planning to have this account/debt on your books?

If you are not cashing out now, what is the expected timeframe for carrying this debt? Without flat-out asking how healthy your debtor is, this is the politest way to bring this issue to the forefront. Is the value of the payout worth the wait?

Before you think poorly of me, let me point out this is your question and situation. Someone has to ask the tough, unpopular, and even seemingly insensitive question.

After considering all the aspects of your dilemma, ultimately you will have to decide if you are going to “fish or cut bait” (oh come on, you knew that was coming).


With more than 30 years of credit management experience in the LBM industry, Thea Dudley consults with companies on a wide range of credit and financial management issues. Contact Thea at theadudley@charter.net


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