If an application for a bank loan requires collateral, what action can a policyowner take?

When a bank loan requires collateral, the policyowner can assign the policy ownership to the bank. This action involves legally transferring the rights of the insurance policy to the bank, which then holds an interest in the policy as collateral against the loan. By doing so, the bank has a claim to the policy's death benefit or cash value in the event that the loan is not repaid. This provides the bank with security, as they can recover their funds through the policy if necessary.

Assigning policy ownership is a common practice in such scenarios. It allows individuals to leverage their existing assets to secure financing without canceling their policies or needing to purchase new insurance. Other choices, like canceling the insurance policy or seeking another bank loan, would not effectively address the need for collateral in this context. Purchasing additional insurance may provide more coverage, but it does not serve as collateral for the existing loan.