Assignment as Collateral (Vinkulierung)
Assignment as collateral refers to the contractual restriction that ties disposal of an insurance benefit to the consent of a third party, usually a lender, in whose favour the policy has been pledged or assigned as security.
Concept
Assignment as collateral refers to the contractual restriction that ties the disposal of an insurance benefit to the prior consent of a beneficiary third party, in whose favour the claims arising from the insurance contract have been pledged or assigned as security. The policyholder remains a party to the contract but can no longer carry out certain acts of disposal – such as receiving payment of the benefit, terminating the contract, or changing the beneficiary – without the consent of the assignee.
Typical Use Cases
Assignment as collateral regularly occurs in connection with securing loans: when financing real estate, lenders frequently require the assignment of building insurance as collateral, to ensure that in the event of a loss the insurance benefit is used primarily to restore the mortgaged property or repay the loan; when securing consumer loans or mortgages, life insurance on the borrower’s life is also often assigned as collateral in favor of the lender. In Austria and Germany, the insurer’s confirmation of the assignment to the bank is sometimes referred to as a Sperrschein.
Legal Effect
Through the assignment, the assignee obtains a secured legal position that ranks ahead of the claims of the policyholder or other third parties; the insurer is obliged, in the event of an insured event, to pay the insurance benefit to the assignee in priority, or to obtain their consent before making payment to the policyholder. The assignment generally ends upon full satisfaction of the secured claim, such as repayment of the loan.