Can a collateral assignment on life insurance be enforced if there is no proof of an underlying claim?

My mother passed away and had a collateral assignment on her life insurance. The bank cannot find any debt ever having been owed by her. Can they hold the assignment indefinitely if they don’t find anything?

Asked on December 13, 2010 under Bankruptcy Law, Colorado


M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

I am so sorry for  your loss.  What you are intimating is that there may be an adverse claim to the life insurance proceeds as you are challenging the assignment of the policy, correct?  If there is nothing to collateralize then the challenge seems reasonable.  Sowhat you need to do is to write to the insurance company and let them know that there is a question as to the collateralization and that you wish for them to interplead the funds in to court to allow you the time you need to figure out what is what.  Then they will bring an action to deposit the funds and so at least you have them in a neutral place.  Good luck to you.

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