Final answer:
A Collateral Assignment is taken when a policyowner uses a Life Insurance policy as collateral for a bank loan.
Step-by-step explanation:
When a policyowner uses a Life Insurance policy as collateral for a bank loan, the action taken is known as a Collateral Assignment. This means that the bank has a right to the policy's death benefit up to the amount of the loan if the borrower does not repay the loan.
The collateral assignment is a conditional assignment where the policyowner retains control over the policy but grants the lender a limited interest in it. The bank does not become the permanent owner of the policy, and the rights revert back to the policyowner once the loan is paid off.