Final answer:
The assignment type used to secure payment of a debt with a life insurance policy is using the policy as collateral. A cash-value or whole life insurance policy has a cash component that can be used to secure a loan, which must be repaid with interest. Policyholders risk a portion of the death benefit if the loan isn't repaid.
Step-by-step explanation:
The type of assignment used to secure the payment of a debt with an existing life insurance policy is known as using the policy as collateral. In this case, cash-value or whole life insurance policies, which have both a death benefit and an accumulated cash value, can be used. This accumulated cash value can serve as a collateral for a loan, securing the lender by providing something valuable that they have a right to seize if the loan is not repaid.
Life insurance companies provide financial protection to beneficiaries after the insured's death and have large cash reserves that can be lent out. Policyholders who have built up a cash value in their policies can borrow against that value. The loan must be repaid with interest, and failure to do so could result in the insurance company taking a portion of the death benefit equal to the outstanding loan.
Thus, using the life insurance policy as collateral is a method by which policyholders can access funds when needed, while also ensuring the lender is protected. This is also related to the concept of moral hazard, as it may encourage the policyholder to take on risks that they otherwise wouldn't if the debt wasn't secured.