collateral assignment brokerage account

What Is a Collateral Assignment of Life Insurance?

Collateral assignment enables you to use your life insurance as collateral for a loan. This allows you to be approved for a loan if you don’t want to put your other assets at risk. Here is how collateral assignment loans work, as well as the pros and cons and alternatives to collateral assignment. For more help with loans or life insurance, consider working with a financial advisor .

When you apply for a loan, such as a business loan, the lender might require collateral before approving the loan. One way to provide collateral for the loan is to use your life insurance policy. If you die before fully repaying the loan, the policy’s death benefit will reimburse your lender first. Then, any remaining funds will go to your beneficiaries.

Not all lenders will allow you to use your life insurance as collateral, and if they do, they may require you to buy a new policy that can be used for collateral. The lender will be listed as an assignee on the collateral assignment form, which is different from indicating the lender as a beneficiary on the policy .

Lenders are often willing to accept this kind of arrangement because money is guaranteed if the borrower defaults or dies before the loan is repaid. To use your life insurance as collateral, you will have to apply for collateral on your new or existing policy.

How to Apply for Collateral Assignment

If your loan requires collateral, there are a few basic steps you must complete to use your life insurance as collateral. We’ll outline those steps here. Firstly, check to see if your existing policy allows collateral assignment and if the policy’s death benefit is sufficient to cover the collateral requirements of the loan. If your existing policy comes up short, you may need a new life insurance policy ; if so, make sure the new policy passes both checks.

Once you have your policy you can use for collateral, you must fill out a collateral assignment form. There, you will indicate your lender as the assignee for the death benefit. Both you and your lender will have to assign the form to provide your approval. At this point, your bank should be able to confirm the collateral assignment and you can apply for your new loan.

Collateral Assignment Benefits

If your credit isn’t the best, your lender might ask for collateral. Using your life insurance policy as collateral might be worth considering. Here are some possible reasons:

• No risking your personal assets : A lot of people’s most valuable assets are their houses and vehicles, which can make them work well as collateral. The problem is that the lender could seize them if you default or pass away before the loan is repaid.
• Cheap alternative to personal loans : Life insurance rates vary on many factors such as your age and health. However, if your policy has low premiums, it might be cheaper than taking on a personal loan.
• Gain access to the funding you need : If a lender asks for collateral, they just want something that can recoup the lost income from the loan. If your life insurance meets that requirement, your lender should be willing to accept it.

Collateral Benefit Downsides

There are, as with any financial choice, potential downsides as well:

• May reduce death benefit for beneficiaries : If you indicate your lender as assignee on the collateral assignment form, they will be paid before your beneficiaries, if necessary. If you have a whole life policy with a cash value , it may be sufficient to cover the cost of the loan. If not, your beneficiaries’ death benefit may be reduced.
• May require a new policy : Your insurer may not allow you to use your existing policy as collateral. If so, you may have to buy a new policy if you still want to go this route.

Possible Alternatives

There are alternatives to a collateral assignment of life insurance that you may want to consider. In addition to the downsides of this arrangement, you may want to reserve your life insurance for other purposes, such as debt repayment.

• Home equity line of credit : If you are a homeowner and have equity in it, you could consider borrowing against that equity. However, that exposes you to the risk of losing your home.
• Unsecured loan : Another alternative is an unsecured loan . However, if one lender required collateral, it likely means an unsecured loan would come with unfavorable terms, such as high rates . Thus, this option is best if you have good to excellent credit.
• Life insurance loan : As discussed earlier, some life insurance policies have a cash value. If you have built enough of a cash value in your policy, you can borrow against it. But any unpaid amount will be deducted from your death benefit – plus interest.
• Policy cash out : It is possible in some cases to cash out a life insurance policy, less certain fees. But this means your existing life insurance policy will be terminated, and you’ll have to find a new one.

The Bottom Line

Collateral assignment of life insurance allows you to use your life insurance policy as collateral when applying for loans. This is especially common when applying for business loans. However, your insurer must allow this arrangement, and the policy must be sufficient to cover the collateral requirements. Using your life insurance policy comes with certain benefits, such as not risking your personal assets. But it also has downsides, such as requiring a new policy in some cases. Consult a financial advisor before making any major financial decisions.

Tips for Buying Life Insurance

• Deciding how much life insurance to buy isn’t easy, especially with so much to take into consideration. SmartAsset’s life insurance calculator can help you estimate how much life insurance you need in your unique situation.
• A financial advisor can guide you through major financial decisions, like buying life insurance.  SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals,  get started now .

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Securities-Based Borrowing

• Potential to access the value of your investments to meet borrowing needs.
• Alternative to selling your investments to fund an expense.
• Securities-based lines of credit are flexible and relatively easy to establish.

Financial flexibility

Have you ever considered using the value of your investment account for borrowing?

Have you ever considered harnessing the value of your investment account for borrowing? Securities-based borrowing may provide access to greater liquidity through a line of credit collateralized by your eligible investments.

Securities-based borrowing has special risks and is not appropriate for all investors. Please read the “borrowing against investments is not without risks” section that follows.

Securities-based loans defined

A securities-based line of credit helps you to meet your liquidity needs by unlocking the value of your investments without selling them.

This type of borrowing may be more flexible and easier to establish than other choices. It depends on whether you have sufficient eligible securities to use as collateral.

Some of the advantages of securities-based borrowing include:

• Access to cash when you need it, potentially avoiding capital gains taxes from selling securities 1
• Typically lower rates than other forms of credit such as credit cards
• No set-up, non-use, or cancellation fees
• Ability to borrow up to 50-95% of your eligible asset value, depending on the collateral type

These lines of credit can be used for many purposes. Common uses include:

• Tax payments
• Real estate financing 2
• Debt consolidation
• Education expenses
• Business financing 3
• Luxury purchases such as a boat, jewelry, or fine art

You can use a non-purpose securities-based line of credit, such as the Wells Fargo Bank Priority Credit Line, offered by Wells Fargo Bank, N.A. in partnership with Wells Fargo Advisors, for nearly any purpose. Note: A Wells Fargo Bank Priority Credit Line cannot be used to purchase or carry margin stock or pay down a margin account debit. A margin account is the only securities-based line of credit you may use to purchase securities. 4

Borrowing against investments is not without risks

Remember you are pledging securities whose value is affected by events outside your control.

Remember you are pledging securities 4 whose value is affected by events outside your control. The risks of securities-based borrowing include:

• If the market value of your pledged securities declines below required levels, you may be required to pay down your line of credit or pledge additional eligible securities in order to maintain the required equity; otherwise Wells Fargo may require the sale of some or all of the pledged securities.
• Wells Fargo Advisors or Wells Fargo Bank N.A., on behalf of WFA, will attempt to notify clients of maintenance calls but is not required to do so. Clients are not entitled to choose which securities in their accounts are sold.
• Adverse tax consequences may occur when selling securities due to a maintenance call

Securities-based borrowing options available to clients with eligible Wells Fargo Advisors account assets include:

• Wells Fargo Bank Priority Credit Line
• Priority Credit Line

Wells Fargo Bank Priority Credit Line Interest Rates

Wells Fargo Bank Priority Credit Line interest rates are based clients’ Wells Fargo Advisors household assets under management and the Secured Overnight Financing Rate (SOFR), which is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. The Federal Reserve Bank of New York publishes SOFR each business day at 8:00am ET. The Wells Fargo Bank Priority Credit Line uses the SOFR rate that is published generally two business days prior to each date the credit line interest accrues. Rates are available at www.newyorkfed.org/markets/reference-rates/sofr .

The minimum initial borrowing power for the Wells Fargo Bank Priority Credit Line is $75,000. Refer to Related Information for about securities-based lending products, including Priority Credit Line and Margin interest rates.

Your financial advisor can help you take an objective look at your full financial picture, including whether securities-based borrowing may help you meet your liquidity needs.

1 Wells Fargo Advisors and its affiliates are not tax or legal advisors.

2 Financing real estate with a securities-based line of credit carries risk and may not be appropriate for your needs. A complete assessment of your circumstances is needed to help you determine which type of loan provides the best fit.

3 For Wells Fargo Bank Priority Credit Line, certain restrictions apply to entity borrowers including sole proprietorships and irrevocable trust borrowers. For details, refer to the Wells Fargo Bank Priority Credit Line Agreement and Account Terms and Conditions delivered with your loan documents, or ask your financial advisor for a copy of the Agreement.

4 Margin borrowing may not be appropriate for all investors. When you use margin, you are subject to a high degree of risk. Market conditions can magnify any potential for loss. The value of the securities you hold in your account, which will fluctuate, must be maintained above a minimum value in order for the loan to remain in good standing. If it is not, you will be required to deposit additional securities and/or cash in the account or securities in the account may be sold. Clients are not entitled to choose which securities in their accounts are sold. The sale of their pledged securities may cause clients to suffer adverse tax consequences. Clients should discuss the tax implications of pledging securities as collateral with their tax advisors. An increase in interest rates will affect the overall cost of borrowing. Wells Fargo Advisors and its affiliates are not tax or legal advisors. Margin strategies are not appropriate for retirement accounts. Please carefully review the margin agreement, which explains the terms and conditions of the margin account, including how the interest on the loan is calculated.

Securities-based lending has special risks and is not appropriate for everyone. If the market value of a client’s pledged securities declines below required levels, the client may be required to pay down the line of credit or pledge additional eligible securities in order to maintain it, or the lender may require the sale of some or all of the client’s securities. For Wells Fargo Bank Priority Credit Line, Wells Fargo Advisors, on behalf of Wells Fargo Bank, N.A., will attempt to notify clients of maintenance calls but is not required to do so. For Priority Credit Line, Wells Fargo Advisors will attempt to notify clients of maintenance calls but is not required to do so. Clients are not entitled to choose which securities in their accounts are sold. The sale of their securities may cause clients to suffer adverse tax consequences. Clients should discuss the tax implications of pledging securities as collateral with their tax advisors. An increase in interest rates will affect the overall cost of borrowing. All securities and accounts are subject to eligibility requirements. Clients should read all lines of credit documents carefully. The proceeds from the Wells Fargo Bank Priority Credit Line may not be used to purchase or carry margin stock or pay down a margin account debit. Margin stock includes any equity security registered on a national or over-the-counter securities trading exchange, any debt security convertible into a margin stock, and most mutual funds. The proceeds from the Priority Credit Line may not be used to purchase additional securities, pay down a margin account debit, or for insurance products offered by Wells Fargo affiliates. Securities held in a retirement account cannot be used as collateral to obtain a securities-based loan. Securities in a Wells Fargo Bank Priority Credit Line or Priority Credit Line collateral account must meet collateral eligibility requirements.

There are conflicts of interest when Wells Fargo Advisors recommends that you use a loan secured by your Wells Fargo Advisors account assets as collateral. Wells Fargo Advisors and its financial advisors have a financial incentive to recommend the use of securities-based lending products rather than selling securities to meet client liquidity needs. Financial advisors will receive compensation on the outstanding loan balance in your Wells Fargo Bank Priority Credit Line or Priority Credit Line account. In addition, your financial advisor’s compensation will be reduced if your interest rate is discounted below a certain level. This creates an incentive for financial advisors to recommend Wells Fargo Bank Priority Credit Line, Priority Credit Line and other securities-based lending products, such as Margin, as well as an incentive to encourage you to maintain a larger loan balance and to discourage interest rate discounts below a certain level. The interest you pay for the loan is separate from, and in addition to, other fees you may pay related to the investments used to secure the loan; such as ongoing investment advisory fees (wrap fees) and fees for investments such as mutual funds and exchange traded funds, for which Wells Fargo Advisors and/or our affiliates receive administrative or management fees or other compensation. Specifically, Wells Fargo benefits if you draw down on your loan to meet liquidity needs rather than sell securities or other investments, which would reduce our compensation. When assets are liquidated pursuant to a maintenance call or demands for repayment, Wells Fargo Advisors and your financial advisor also will benefit if assets that do not have ongoing fees (such as securities in brokerage accounts) are liquidated prior to, or instead of, assets that provide additional fees or revenues to us (such as assets in an investment advisory account). Further, different types of securities have higher release rates than others, which can create a financial incentive for your financial advisor to recommend products, or manage the account, in order to maximize the amount of the loan.

Wells Fargo Bank, N.A. has a lien on the account assets that are used as collateral for the Wells Fargo Bank Priority Credit Line. Wells Fargo Advisors has a lien on the account assets that are used as collateral for Priority Credit Line accounts. We will act to protect ourselves as lenders in connection with the loan and this may be contrary to your interests and/or investment objectives. This lien also creates a conflict of interest with respect to the recommendations your financial advisor makes to you. For example, your financial advisor may recommend that you allocate your investments to your account with a lien rather than to another account without such a lien. Also, your financial advisor may recommend an investment solely to minimize the risk of loss with respect to the collateral.

Wealth & Investment Management offers financial products and services through bank and brokerage affiliates of Wells Fargo & Company. Wells Fargo Bank Priority Credit Lines are offered by Wells Fargo Bank. N.A. as the lender, in partnership with Wells Fargo Advisors as agent, servicer and intermediary holding the collateral accounts. Priority Credit Lines and Margin are provided by Wells Fargo Advisors and carried by Wells Fargo Clearing Services, LLC, as the lender. Wells Fargo Bank, N.A. (member FDIC) is a banking affiliate of Wells Fargo & Company. Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company.

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What is collateral assignment of life insurance?

Life insurance can act as collateral for you to secure a loan. With a collateral assignment, the payout from your insurance goes to pay your loan balance first, and your loved ones will get to keep any remaining money.

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Updated January 3, 2024 | 4 min read

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Collateral assignment of life insurance is an arrangement where you agree to give a lender the first claim to the payout from your life insurance policy. This allows your life insurance to serve as the collateral that many loans — especially small business loans or Small Business Administration (SBA) loans — require before they can lend you money you need. 

In other words, the money from your life insurance payout helps the lender feel confident that they can collect the balance on your loan, even if you die while you’re still making payments. After the loan is paid off, anything left over will go to your loved ones.

How does a collateral assignment work?

Collateral assignment is an additional agreement to your life insurance policy that gives a lender first claim to your life insurance payout, but lets you name beneficiaries who can claim any money left over after the loan is paid. This is different from credit life insurance , which forces you to name your lender as the sole beneficiary of your policy. You can use either a term life or a permanent life insurance policy for collateral assignment.

If you already have a life insurance policy, and the death benefit is worth more than the loan you want to get, you may be able to use it as collateral. In other cases, loan companies that take life insurance as collateral may require you to buy a new policy that covers at least the full amount due. 

Either way, the process of getting a policy is the same. You’ll go through the application and underwriting process, and wait to receive your offer. Then, you’ll complete paperwork to set up a collateral assignment. 

Once you’ve paid off the loan, you’ll get a written release from the lender. The collateral assignment condition on your policy ends, but you can keep the policy active if you choose.

Learn more about how life insurance underwriting works

How do you apply for collateral assignment of life insurance?

There are a few simple steps to follow if you want to use life insurance as collateral for a loan. 

Find a lender willing to use life insurance as collateral for the money you want to borrow. 

Confirm the lender’s requirement and see if you can use any existing life insurance to meet it. 

If that’s not an option, purchase a new life insurance policy. 

Once your policy is active, ask the insurer for a collateral assignment form. 

Complete the form and list your lender as the assignee. 

Who should you name as your beneficiary?

When buying life insurance for collateral assignment, the process for setting up the policy is just like any other policy. 

You’ll name your beneficiaries as you would for a personal policy (e.g., spouse, relative, or trust for children). 

The lender is not your beneficiary; they are the assignee on the collateral assignment paperwork. You are the assignor .

Once your policy is set up, a collateral assignment will supersede your beneficiaries’ right to the death benefit. 

If you die, the life insurance company pays the lender, or assignee, the loan balance. Any remaining benefit will go to your beneficiaries.

Who owns your life insurance policy?

Usually, the insured person is the policyowner and the payor on a life insurance policy. Some lenders may require an escrow account for the life insurance premiums; others may require proof of payment or prepayment.

If you’re using a permanent life insurance policy for the collateral assignment, a lender may have access to the cash value if you default on the loan.

Learn more about cash value life insurance

When should you fill out collateral assignment paperwork?

You only complete a collateral assignment agreement once a life insurance policy is active. After you pay your first premium , and sign your policy papers, you can request a collateral assignment form from the life insurance company or your insurance broker.

You’ll need your loan officer’s name and number for the form, as well as your policy number, Social Security number, and other personal information. 

Once completed and signed by both the assignee and the assignor, you’ll file the collateral assignment form with the life insurance company and the lender according to whichever procedures they use for this process.

When does your collateral assignment end?

Collateral assignment ends only if:

You pay off your loan, or

You pass away. 

Your lender must agree that the terms of your loan have been met and send a release to your insurer to terminate the agreement.

If your policy lapses — or you choose to cancel it — that could violate your loan contract. The lender may even make payments on your behalf to prevent a policy lapse. In that scenario, the lender adds the amount they pay to your loan total.

Ready to shop for life insurance?

Collateral assignment pros & cons

Collateral assignment of life insurance has clear pros and cons. Review the following list carefully to decide if it’s a good option for you.

A collateral assignment enables you to secure business loans or other needed funds.

It’s less risky for a family than using a home or other essential property as collateral.

You can choose beneficiaries to receive any remaining death benefit funds.

The lender has first right to the death benefit, so your family may not get the benefit you intended.

Lapsing or canceling the policy could violate your business loan terms, causing problems with the lender.

You’re responsible for making payments until you die or the loan is paid off.

Alternatives to collateral assignment

Other ways to use a life insurance policy for debt repayment include the following options.

Life insurance loan: If you own a permanent life insurance policy, a life insurance loan allows you to borrow directly from your policy’s cash value. Any unpaid balance, plus interest, is deducted from your death benefit.

Cash surrender: The cash surrender value is the cash value built up in the policy minus administrative fees. Surrendering your policy cancels your coverage, so you’d need another policy for continued financial protection. You could also face penalties if you cancel during your policy’s surrender period.

Term life insurance: You should always buy enough insurance to cover your debts . On average, term life is much cheaper than whole life. Even if your lender doesn’t require collateral, your beneficiaries can use the death benefit to pay off your debts and keep the remainder.

For most people, term life is the most affordable and straightforward option to provide coverage for any outstanding loans when they die, with or without a collateral assignment attached.

If you need to use your life insurance policy for collateral assignment, the process is as simple as buying a policy and filling out the appropriate paperwork. Work with a licensed agent who can help you determine how much coverage you need and help you set up a collateral assignment. 

Tory Crowley

Associate Editor & Licensed Life Insurance Agent

Tory Crowley is an associate life insurance and annuities editor and a licensed insurance agent at Policygenius. Previously, she worked directly with clients at Policygenius, advising nearly 3,000 of them on life insurance options. She has also worked at the Daily News and various nonprofit organizations.

Nupur Gambhir

Senior Editor & Licensed Life Insurance Expert

Nupur Gambhir is a licensed life, health, and disability insurance expert and a former senior editor at Policygenius. Her insurance expertise has been featured in Bloomberg News, Forbes Advisor, CNET, Fortune, Slate, Real Simple, Lifehacker, The Financial Gym, and the end-of-life planning service Cake.

Antonio Ruiz-Camacho

Associate Content Director

Antonio is a former associate content director who helped lead our life insurance and annuities editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.

Expert reviewer

Maria Filindras

Financial Advisor

Maria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

Questions about this page? Email us at  [email protected] .

How does Collateral Assignment of Life Insurance Work?

Life insurance can be a good, even necessary investment for most people. Did you know it can also help you get a loan? Taking out a loan against your life insurance policy is called collateral assignment. Lenders often accept life insurance policies as collateral because it’s a low risk loan; they know they’re going to get their money back.

What is Collateral Assignment of Life Insurance?

What kinds of life insurance can be used for collateral assignment, pros and cons of collateral assignment.

In any type of loan, there needs to be some kind of collateral. For a mortgage, your house is collateral, for your car loan, your car is the collateral. If you default, the bank can take your house or your car and sell them, thus getting their money back. If you’re seeking a small business loan, it might be a problem to find collateral to offer to the bank. You could offer the business, but it might not be worth as much as the loan amount. This is where collateral assignment of a life insurance policy comes in.

Collateral assignment is the act of offering your life insurance policy as collateral on a loan. Life insurance that can be used as collateral are cash value life insurance such as whole life or universal life insurance . The reason that these policies can be used as collateral is that they have cash value and even if policy holders can’t afford to pay premium any more, they can still cancel the policy and get cash surrender value to pay back the loan. This makes it easier to obtain a loan, as the bank knows they will get their money eventually. 

It is logical that banks don’t lend more than cash surrender value of the policy at the time of lending.

You still have the same beneficiaries as you did on the original policy. You don’t want to name the bank as the beneficiary, because that way, the bank gets the death benefit on the policy when you die—even if you already paid off the loan. So, don’t do that. 

You will name the bank as the assignee on the form, and you will be the assignor. The borrower must be the owner of the policy, and the policy must remain current; you still need to pay all of the premiums. 

You will then apply for a collateral assignment of life insurance with the life insurance company and the bank. First, the life insurance company will say it’s okay to use your policy as collateral. Then you’ll let the bank know. The bank then proceeds like it would for any other loan: they evaluate the risk involved, and either agree to loan you the money or deny your application. 

Some banks will let you use an existing life insurance policy, and some will require that you take out a new policy just for the collateral. If you do have to apply for a new policy, make sure you let the insurance company know that you want the policy to serve as collateral in a loan. 

Collateral assignment of life insurance is a limited transfer; in other words, the bank only gets the money on the policy if you default on the loan.

Once the loan is paid off, the bank sends the insurance company a release form. This cancels the assignment and restores the life insurance back to the owner.

If you die or default with your life insurance policy being used as collateral assignment, the lender will take the money still left on the loan, and the rest will go to your beneficiaries. This is why it’s important not to name a bank as a beneficiary. If a bank asks you to name them as beneficiary, find a different bank.

You can only use life insurance policies with cash value account as collateral because lenders will lend you against the cash value account in the policy.

• Whole life: You can use whole life policy as collateral, but only if you’ve built up cash value. Should you default on the loan, the lender will have access to the cash value. 
• Universal life: Indexed universal or variable universal life insurance policies can also be used as collateral for a loan as long as the cash value account inside the policy has been built up.
• Group life insurance: Some group life insurance such as whole life or universal life group life insurance may qualify for collateral assignment. You need to talk to your benefits administrator. Keep in mind these are usually small policies.
• Qualification : You can be qualified for loans you might not otherwise
• Affordability : you may be able to offer an indexed universal policy for collateral, and thus pay low rates for a loan
• Protects your other assets . If you own your home, you could offer it as collateral, but if you default, the bank will take it.
• Should you die, your heirs won’t have debt from a loan : the insurance policy pays the bank
• Your heirs may get a reduced death benefit 
• Getting a qualifying life insurance policy takes some effort
• Loss of control: Until you pay off the loan, the bank is in charge of the policy. They can even buy another policy for you and add those premiums to the principal if you fall behind on the loan.

Last Thoughts

Collateral assignment of a life insurance policy is often used to secure a small business loan. It can help you qualify for such loans, whereas if you didn’t have life insurance, you’d have to put something else up as collateral. Most banks and insurance companies are familiar with the process of collateral assignment of life insurance, and it should be a simple process.

Thang Truong covers small business insurance and small business success at BravoPolicy. He is a licensed P&C insurance agent. Previously, he held product leadership positions at realtor.com, Capital One, NerdWallet, and Mulberry Technology. He holds a MBA degree from UC Berkeley - Haas School of Business.

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Collateralized Loans 101: Helping clients work towards short-term financial needs while maintaining their long-term wealth-building strategies

By Bryan Loew, Head of Wealth Lending Sales

Seeking to maximize your wealth requires understanding of your financial goals and building strategies to work towards them. But how do you manage when your long-term financial goals are challenged by your short-term needs? In today’s competitive marketplace, securities-backed lines of credit can provide liquidity while allowing long-term investment strategies to stay on track.

What is a collateralized loan? A collateralized or securities-based loan allows you to utilize securities, cash, and other assets in brokerage accounts as collateral to obtain variable or fixed-rate loans for almost any purpose. Borrowing against assets in an effort to preserve both wealth and wealth-building strategies may be a prudent solution for people who would like to consolidate debt, purchase or expand a business, invest in real estate, pay for luxury items, fund education or satisfy any immediate financial need without liquidating assets. These loans differ from margin loans in that they may not be used to purchase securities and typically have higher advance ratios.

Is a collateralized loan right for you?

Here are some items for consideration:

Timeliness.  This type of loan may be ideal for you if you are interested in obtaining short-term financing for a business venture, real estate acquisition or other high-cost transaction – particularly when time is of the essence. Because funding for large purchases and business opportunities often involves a lengthy application and approval process, collateralized lending may offer a more timely financing solution

Capital gains and tax considerations.  Collateralized lending may also be ideal for people who have significant investments that, if sold to meet a specific or immediate need, would trigger tax consequences and eliminate the potential for ongoing growth in the markets

Time horizon and interest rate.  Your long-term financial strategy, time horizon and ability to assume additional debt must be weighed against the cost of a securities-based loan. While some lenders charge variable interest two to five points above a market index, others may offer a range of terms and conditions based on the diversification and holdings of each client’s portfolio. TD Bank, for example, offers customized solutions that include both fixed and flexible terms. Lenders' rates on variable, fixed and term loans must be factored into the decision

Risk tolerance.  Determining your risk/reward and volatility/payback equations will be important. If the collateralized equities decrease in value below the contract threshold, borrowers may have to pay down the loan, deposit more collateral or sell holdings without recourse. Therefore, clients must consider these factors carefully when selecting holdings to use as collateral

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What Is Collateral Assignment (of a Life Insurance Policy)?

Meredith Mangan is a senior editor for The Balance, focusing on insurance product reviews. She brings to the job 15 years of experience in finance, media, and financial markets. Prior to her editing career, Meredith was a licensed financial advisor and a licensed insurance agent in accident and health, variable, and life contracts. Meredith also spent five years as the managing editor for Money Crashers.

Definition and Examples of Collateral Assignment

How collateral assignment works, alternatives to collateral assignment.

Kilito Chan / Getty Images

If you assign your life insurance contract as collateral for a loan, you give the lender the right to collect from the policy’s cash value or death benefit in two circumstances. One is if you stop making payments; the other is if you die before the loan is repaid. Securing a loan with life insurance reduces the lender’s risk, which improves your chances of qualifying for the loan.

Before moving forward with a collateral assignment, learn how the process works, how it impacts your policy, and possible alternatives.

Collateral assignment is the practice of using a life insurance policy as collateral for a loan . Collateral is any asset that your lender can take if you default on the loan.

For example, you might apply for a $25,000 loan to start a business. But your lender is unwilling to approve the loan without sufficient collateral. If you have a permanent life insurance policy with a cash value of $40,000 and a death benefit of $300,000, you could use that life insurance policy to collateralize the loan. Via collateral assignment of your policy, you authorize the insurance company to give the lender the amount you owe if you’re unable to keep up with payments (or if you die before repaying the loan).

Lenders have two ways to collect under a collateral assignment arrangement:

• If you die, the lender gets a portion of the death benefit—up to your remaining loan balance.
• With permanent insurance policies, the lender can surrender your life insurance policy in order to access the cash value if you stop making payments.

Lenders are only entitled to the amount you owe, and are not generally named as beneficiaries on the policy. If your cash value or the death benefit exceeds your outstanding loan balance, the remaining money belongs to you or your beneficiaries.

Whenever lenders approve a loan, they can’t be certain that you’ll repay. Your credit history is an indicator, but sometimes lenders want additional security. Plus, surprises happen, and even those with the strongest credit profiles can die unexpectedly.

Assigning a life insurance policy as collateral gives lenders yet another way to secure their interests and can make approval easier for borrowers.

Types of Life Insurance Collateral

Life insurance falls into two broad categories: permanent insurance and term insurance . You can use both types of insurance for a collateral assignment, but lenders may prefer that you use permanent insurance.

• Permanent insurance : Permanent insurance, such as universal and whole life insurance, is lifelong insurance coverage that contains a cash value. If you default on the loan, lenders can surrender your policy and use that cash value to pay down the balance. If you die, the lender has a right to the death benefit, up to the amount you still owe.
• Term insurance : Term insurance provides a death benefit, but coverage is limited to a certain number of years (20 or 30, for example). Since there’s no cash value in these policies, they only protect your lender if you die before the debt is repaid. The duration of a term policy used as collateral needs to be at least as long as your loan term.

A Note on Annuities

You may also be able to use an annuity as collateral for a bank loan. The process is similar to using a life insurance policy, but there is one key difference to be aware of. Any amount assigned as collateral in an annuity is treated as a distribution for tax purposes. In other words, the amount assigned will be taxed as income up to the amount of any gain in the contract, and may be subject to an additional 10% tax if you’re under 59 ½.

A collateral assignment is similar to a lien on your home . Somebody else has a financial interest in your property, but you keep ownership of it.

The Process

To use life insurance as collateral, the lender must be willing to accept a collateral assignment. When that’s the case, the policy owner, or “assignor,” submits a form to the insurance company to establish the arrangement. That form includes information about the lender, or “assignee,” and details about the lender’s and borrower’s rights.

Policy owners generally have control over policies. They may cancel or surrender coverage, change beneficiaries, or assign the contract as collateral. But if the policy has an irrevocable beneficiary, that beneficiary will need to approve any collateral assignment.

State laws typically require you to notify the insurer that you intend to pledge your insurance policy as collateral, and you must do so in writing. In practice, most insurers have specific forms that detail the terms of your assignment.

Some lenders might require you to get a new policy to secure a loan, but others allow you to add a collateral assignment to an existing policy. After submitting your form, it can take 24 to 48 hours for the assignment to go into effect.

Lenders Get Paid First

If you die and the policy pays a death benefit , the lender receives the amount you owe first. Your beneficiaries get any remaining funds once the lender is paid. In other words, your lender takes priority over your beneficiaries when you use this strategy. Be sure to consider the impact on your beneficiaries before you complete a collateral assignment.

After you repay your loan, your lender does not have any right to your life insurance policy, and you can request that the lender release the assignment. Your life insurance company should have a form for that. However, if a lender pays premiums to keep your policy in force, the lender may add those premium payments (plus interest) to your total debt—and collect that extra money.

There may be several other ways for you to get approved for a loan—with or without life insurance:

• Surrender a policy : If you have a cash value life insurance policy that you no longer need, you could potentially surrender the policy and use the cash value. Doing so might prevent the need to borrow, or you might borrow substantially less. However, surrendering a policy ends your coverage, meaning your beneficiaries will not get a death benefit. Also, you’ll likely owe taxes on any gains.
• Borrow from your policy : You may be able to borrow against the cash value in your permanent life insurance policy to get the funds you need. This approach could eliminate the need to work with a traditional lender, and creditworthiness would not be an issue. But borrowing can be risky, as any unpaid loan balance reduces the amount your beneficiaries receive. Plus, over time, deductions for the cost of insurance and compounding loan interest may negate your cash value and the policy could lapse, so it’s critical to monitor.
• Consider other solutions : You may have other options unrelated to a life insurance policy. For example, you could use the equity in your home as collateral for a loan, but you could lose your home in foreclosure if you can’t make the payments. A co-signer could also help you qualify, although the co-signer takes a significant risk by guaranteeing your loan.

Key Takeaways

• Life insurance can help you get approved for a loan when you use a collateral assignment.
• If you die, your lender receives the amount you owe, and your beneficiaries get any remaining death benefit.
• With permanent insurance, your lender can cash out your policy to pay down your loan balance.
• An annuity can be used as collateral for a loan but may not be a good idea because of tax consequences.
• Other strategies can help you get approved without putting your life insurance coverage at risk.

NYSBA. " Life Insurance and Annuity Contracts Within and Without Tax Qualified Retirement Plans and Life Insurance Trusts ." Accessed April 12, 2021.

IRS. " Publication 575 (2020), Pension and Annuity Income ." Accessed April 12, 2021.

Practical Law. " Security Interests: Life Insurance Policies ." Accessed April 12, 2021.

What Is Collateral Assignment?

• Life insurance has many different, creative uses. Learn about life insurance assignments, or, collateral assignments and how they can be used to secure a loan.

There are many creative uses for life insurance. You can use it for a lot more than just paying for your funeral or covering debts you leave behind. There are ways to assign your life insurance policy to another party for a number of purposes. Collateral assignment is one of those processes.

Collateral assignment uses your life insurance policy as collateral. The lender is assigned as the primary beneficiary to insure they don’t lose money on a loan. If the borrower can’t pay, the lender sells the life insurance policy to cover the loan. If the borrower dies before paying off the loan, the lender takes what is owed from the death benefit.

The situation works out nicely for the lender, as generally death benefits not assigned to a lender are protected from debtors. Without collateral assignment, a lender could lose money in the event of a borrower's death.

To use a policy as collateral, it will likely need to be a whole life policy. Otherwise, the lender would not be able to sell it to recover its investment. After the loan is paid in full, the primary beneficiary on a collateral policy is generally reassigned to someone the policyholder chooses.   

Absolute Assignment 

Where collateral assignment only transfers the right of primary beneficiary, absolute assignment transfers ownership of the entire policy. The use of absolute assignment is broader than collateral assignment. It doesn’t always involve a loan.

One common use of absolute assignment is charitable donation. You can transfer ownership of a whole life policy to a charity and it sets itself as the primary beneficiary. This is can be more efficient in some cases than just setting a charity as a beneficiary and avoids delays and fees involved with the estate. You may also be able to write off your premium in this situation as a charitable donation. Absolute assignment cannot be revoked.

Collateral Assignment of Life Insurance

Collateral assignment of life insurance means using a policy as collateral for a loan. If the borrower dies before paying it back, the lender can take the unpaid amount from the insurance payout upon the borrower’s death.

In this guide, you’ll learn how collateral assignments work, why they’re used, and the pros and cons of using life insurance as collateral.

Table of Contents

What Is Collateral Assignment?

• Policy Options for Collateral Assignment

How to Use Life Insurance as Collateral for a Loan

• Life Insurance as Collateral: Pros & Cons
• Alternatives to Life Insurance

Did you know you can use  life insurance to secure an SBA loan for your growing business? Get started today.

Valuable assets (like a home or vehicle) typically serve as collateral for a mortgage or an auto loan. If you default on payments, the lender can repossess it to recover their money.

Lenders require reassurance for loans that aren’t directly tied to a physical asset. You can use a life insurance policy as loan collateral in these cases.

As owner of the life insurance policy , you collaterally assign it to the lender, which means:

• If you die before the loan is repaid, the death benefit covers your remaining loan balance
• Any remaining proceeds go to your named beneficiaries

Collateral vs Absolute Assignment of Life Insurance

There are two types of assignment for life insurance: collateral and absolute.

Collateral assignment of life insurance : You control the policy. It’s commonly used to secure a small business loan.

Absolute assignment : You transfer all policy rights to the assignee. It’s often used when a policy owner sells it to a third party for an immediate cash benefit.

Similarities between collateral and absolute assignment:

• Both involve the transfer of rights under a policy.
• Both require the consent of the insurance company.
• Both can be used as a means of managing financial risks or responsibilities.

Differences between collateral and absolute assignment:

Collateral assignment:

• Used to secure a loan or other financial obligation.
• The policy owner maintains ownership and control over the asset, except for the rights assigned as collateral.
• The lender (assignee) only has rights to the asset in the event of death or, in some cases, default.
• The assignment is temporary and removed when the loan is repaid.

Absolute assignment:

• The policy is fully transferred to a new owner.
• The original owner gives up all rights and control over the policy, including the right to name beneficiaries and access cash value.
• The new owner can manage the policy however they see fit, including selling it, borrowing against it, or changing its terms.
• The assignment is permanent; the original owner can’t reclaim rights to the policy without the new owner’s consent.

Life Insurance Assignee vs Beneficiary

A life insurance assignee is a person or entity to whom a policy’s rights have been transferred.

A beneficiary is a person, trust, or entity designated by a policy owner to receive the death benefit when the insured person dies.

Whether used for collateral assignment or not, your policy needs designated beneficiaries .

Here’s why:

• The lender only has a legal claim to the death benefit if you die before the loan is paid.
• If you pass away, the lender gets their payment, and the rest goes to your beneficiaries.
• If you repay the loan in full and die, the lender receives nothing, and your beneficiaries receive the full benefit.

Life Insurance Policy Options for Collateral Assignment

Using life insurance for collateral assignment when applying for loans is a common practice that almost every life insurance company and lender is equipped to handle.

Examples of when life insurance can be collaterally assigned include:

• Personal loans
• Business loans

There are two types of life insurance—term life insurance and permanent life insurance—and both kinds can be used for collateral assignment.

Term Life Insurance

Lenders typically accept term life insurance as collateral, provided that the policy aligns with the size and duration of the loan.

Coverage and term length must equal the loan’s terms– or exceed them.

For example, if you’re securing a 20-year loan, you would need a term life insurance policy that spans 20 years.

If you pass away before repayment, the insurance company pays the outstanding loan balance to the lender from your policy’s death benefit first. Any remaining amount after the loan is fully paid would then be distributed to the beneficiaries you have named on your policy.

If you repay the loan before passing, the collateral assignment ends, and the total death benefit amount is reserved for your beneficiaries.

Permanent Life Insurance

Lenders often find permanent life insurance policies appealing as collateral due to their unique cash value component.

Life insurance with cash value provides an added level of reassurance to the lender, ensuring the cash value will offset the loan if the borrower defaults. 

However, even though the policy’s worth grows over time, the death benefit must cover the entire loan.

If you pass away before the loan is repaid, the company would first pay the loan balance from your policy’s death benefit to the lender.

Any remaining proceeds from the death benefit would then be distributed to the beneficiaries named on your policy.

Learn more about the differences between term and permanent life insurance .

See what you’d pay for life insurance

If you’re looking to secure a loan with life insurance, you can buy a policy to do so or collaterally assign a policy you already own.

Collateral Assignment of a Life Insurance Policy You Already Own

To collaterally assign an existing policy, you and your lender must fill out a short form confirming the details.

You or your agent can request this form directly from the life insurance company.

Once the completed forms are back in the insurance company’s possession, they will review them and send confirmation in a few weeks.

• If you already own a life insurance policy worth enough to cover the loan, you can usually use it as collateral.
• If you currently have term life insurance, the remaining years on your term must be longer than the loan’s term.

Collateral Assignment of a New Life Insurance Policy

Buying a new life insurance policy for collateral assignment is similar to that of any other purpose for life insurance.

• Step 1: Determine the amount of life insurance coverage you need . While the coverage should be sufficient to cover the loan, you may consider additional obligations like income replacement for your family, mortgage payments, and more.
• Step 2: Apply for a life insurance policy as you would normally. List your chosen beneficiaries, such as your spouse, adult child, etc. At this stage, there’s no need to list the lender as a beneficiary.
• Step 3: Activate your policy. Then, request a collateral assignment form from your agent or insurer directly.
• Step 4: Complete the form and return it to the insurance company. After processing, the insurer acknowledges the collateral assignment. Then the lender obtains rights to the death benefit, up to the amount owed on the loan, if you die before the loan is repaid. Any remaining death benefit would be distributed to the other named beneficiaries.
• Step 5: While collateral assignment is active, policy control may be limited. The specifics of what actions are permissible can vary, so reviewing the terms of the loan and collateral assignment agreement is essential.
• Step 6: Collateral assignment terminates when the loan is paid. Your full ownership rights are then restored.

Explore the various ways business owners use life insurance to protect their business and their loved ones. 

Life Insurance as Collateral: Pros and Cons

Overall, using life insurance as collateral can be a sound and effective strategy for obtaining a loan, provided that it aligns with your financial circumstances and goals.

Collateral assignment impacts your control and financial protection for beneficiaries positively and negatively.

• Access to loans
• Loan approval
• Protection for beneficiaries
• Limited policy control
• Risk to beneficiaries
• Additional costs
• Policy loss

Alternatives to Collateral Assignment

Collateral assignment isn’t the only way to secure a loan. Knowing alternatives can help you decide what best aligns with your financial circumstances and goals.

Some examples include:

• Cash value: If you already own a permanent life insurance policy with accumulated cash value, you can borrow against this amount through policy loans .
• Unsecured loans: These do not require collateral and are primarily based on your creditworthiness. They often come with higher interest rates.
• Secured loans: These are backed by collateral that isn’t life insurance, like investments, savings accounts, or valuable property. If you default on a secured loan, the lender seizes the collateral.
• Home Equity Line of Credit (HELOC): This uses your home as collateral if you’ve built enough equity.
• Credit cards: Interest rates are higher than other loans, but credit cards can be used in a pinch.
• Grants or government programs: Grants or government programs might be available to provide funds with attractive terms.

Compare Life Insurance Quotes and Apply Today

The primary purpose of life insurance is to provide financial protection to those who depend on you. But life insurance has other uses as well, such as collateral assignment.

If you don’t yet have life insurance, start by getting quotes . Here at Quotacy, you can see quotes instantly without giving away any contact information. Compare policies from multiple top-rated insurers and apply with confidence.

The online application only takes a few minutes. When you submit yours, you’re assigned a dedicated life insurance agent who advocates for you. Your agent ensures you get the best possible rate and provides unbiased advice.

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Collateral Assignment of Life Insurance (Including Key Steps)

In the world of personal finance, bank loans of one type or another are a routine occurrence.  It is also common for business owners to borrow money in starting a new venture and/or funding the expansion of an existing enterprise.

In securing such loans, lenders often require a life insurance policy on the borrower. Many people are somewhat unfamiliar with this type of requirement and may have a variety of questions, such as...

What is a collateral assignment of life insurance? Is there a difference between absolute assignment vs. collateral assignment? Or, what is involved in the assignment of a life insurance policy?

These or other related questions are understandable, given that this request by a prospective lender may be the first time an individual has ever heard of a collateral assignment. This article, Collateral Assignment of Life Insurance (Including Key Steps) , provides information related to the collateral assignment of life insurance, compares absolute assignment to collateral assignment, and discusses the process for collateral assignment, as well as other considerations in understanding how life insurance policies work .

JUST NEED A QUICK LIFE INSURANCE QUOTE?

Collateral assignment of life insurance.

In applying for personal or business loans, a borrower’s repayment capacity, credit history, collateral assets, and other factors are routinely evaluated by a prospective lender.

As part of the repayment consideration, the lender may require a life insurance policy on the borrower as a condition of the loan. This requirement is more common with business loans, such as U.S. Small Business Administration (SBA) loans, but may also apply to personal lending in certain circumstances.

This type of arrangement is referred to as a collateral assignment and guarantees loan repayment in the event of a borrower’s untimely death. In this scenario, the policy owner is the assignor , and the lender requiring collateral assignment is the assignee .

In a collateral assignment, the insured borrower’s death benefit would be used to repay the outstanding loan amount, with any remaining benefit being paid to the policy’s listed beneficiaries. The life insurance policy used for collateral assignment may be either an existing policy or a new policy taken out specifically for this purpose.

Please note that a collateral assignment is preferred to simply listing the lender as a beneficiary on the policy since the outstanding loan amount usually decreases over time. Additionally, a collateral assignment will routinely terminate once the perspective loan balance has been paid in full.

According to the U.S. Small Business Administration , "l enders should require life or disability insurance where there is a concern over whether the business could survive in the absence of an individual. When life or disability insurance is deemed prudent, the lender may accept a COLLATERAL ASSIGNMENT of an existing or new decreasing term or universal life insurance policy. LENDER SHOULD NOT BE NAMED AS A BENEFICIARY." 

Types of Life Insurance for Collateral Assignment

If a death benefit only is required by a lender, either type of life insurance (i.e., term or permanent) is normally acceptable for collateral assignment.

On the other hand, if the lender requires “collateral” as a condition of extending the loan, an adequately funded cash value policy or other assets as collateral may be required.

Additionally, either an existing policy that you own or a new policy purchased specifically for collateral assignment may be acceptable.

Term Life Insurance

In many instances, term life insurance is the most logical and economical type of policy for providing a lender-required death benefit. Additionally, if a new policy is being established to meet lender requirements, a policy term length can be selected, which coincides with the terms of the loan.

As an example, a 10-year term life insurance policy could be purchased for collaterally assigned to a 10-year loan. Since term life is “pure” protection and provides no cash value, this type of policy will likely meet collateral assignment requirements for a death benefit only. If a lender requires additional collateral as a condition of loan approval, an existing permanent policy with accumulated cash value may be preferred.

Permanent Life Insurance

A permanent life insurance policy may also be used for collateral assignment. In the case of a permanent life policy, the accumulated cash value may be assessed to repay any outstanding balance in the event of borrower default, as well as providing death benefit protection. On a positive note, this “collateral” may be helpful in qualifying for a loan but also limits the policy owner’s access to the cash value as long as there is an outstanding balance.

In either event, once the loan is paid off, collateral assignment restrictions to both the cash value and death benefit are removed. It is also important to note that the policy owner has a responsibility to ensure that a policy used for collateral assigned remains in force and that required premiums are paid.

Group Life Insurance

In some instances, an individual’s group life insurance (employee benefits) may be used for collateral assignment. This is not common but is offered by some insurance companies as an option for group policy members. If you are considering a collateral assignment of life insurance that is part of a group policy or employee benefits, you should contact your benefits administrator and/or issuing insurance company to determine availability.

Collateral Assignment vs. Policy Loans

In answering questions related to the collateral assignment of life insurance, we sometimes receive inquiries concerning how collateral assignment differs from a policy loan.

First off, a collateral assignment and a policy loan are completely different processes. 

With a collateral assignment, a borrower’s life insurance policy death benefit and/or cash value may be used to repay the outstanding loan balance in the event of borrower death and/or default. In comparison, a life insurance policy loan involves borrowing money directly from the life insurance company using the accumulated cash value as collateral. If you own a permanent life insurance policy (i.e., whole life, universal life, variable life, etc.), and have adequate cash value, a policy loan may be a great option to consider.

In comparing loan options, it is important to consider interest rates, loan terms, and other factors. It is also important to note that with a policy loan, you will be charged interest on the amount borrowed, an unpaid loan may reduce the death benefit paid to beneficiaries, and a policy lapse can have significant tax implications.

If you are considering taking out a policy loan on an existing life insurance policy, please consult your insurance and tax professionals for advice specific to your individual situation.

Absolute Assignment vs. Collateral Assignment

Another question that we receive related to the assignment of life insurance policies involves the difference between an absolute assignment vs. a collateral assignment.

As the name implies, an absolute assignment is exactly that, a complete assignment of all interest in a policy’s ownership. According to The Economic Times , "absolute assignment shifts the ownership of the insurance policy.”

Also, assigning a bank as a beneficiary on a life insurance policy is another common mistake. Being named as the primary beneficiary gives the bank rights to the entire death benefit regardless of the current balance on any loan. Whereas, as discussed above, a collateral assignment only commits policy benefits for the term and/or outstanding balance of the loan. So, after the loan amount is paid, the remaining death benefit would go to the policy’s primary beneficiaries.

To reiterate, NEVER provide an absolute assignment or primary beneficiary designation to a lender if all that is required is the collateral assignment of life insurance.

Process for Collateral Assignment of Life Insurance

In completing a collateral assignment of life insurance, it is extremely important to follow the requirements of both the proposed lender and prospective insurance company.

The attention to detail through this process can help to ensure that the collateral assignment is accurately completed, meeting ender requirements.

Using an Existing Life Insurance Policy

If you are required to provide a collateral assignment for a loan and have an existing life insurance policy with an adequate face amount, you can reach out to the issuing insurance company’s policy service department to request collateral assignment instructions and required forms.  Most insurance companies allow collateral assignment of life insurance unless otherwise prohibited in the policy contract.

While the insurance company must be notified and will require certain paperwork to process the request, they are otherwise not involved in the loan process. When completing life insurance company collateral assignment forms, be prepared to provide detailed information related to both your existing policy and perspective loan.

Applying for a New Life Insurance Policy

If you require a collateral assignment for a loan and do not have an existing life insurance policy, you will need to apply for a new policy to meet the terms of your lender. Though the primary purpose of the new policy may be to satisfy lender requirements, it is always advised that you consider comprehensive coverage needs when applying for life insurance.  As an example, you may choose to apply for a longer term policy that you plan to keep after the loan has been paid off for personal or business protection.

As with any purchase of life insurance, it is important to select the right type of policy, amount of coverage, and insurance company based on your individual situation. In naming beneficiaries on a life insurance policy purchased for collateral assignment, ensure to name personal beneficiaries (not the lender). This designation is extremely important since named beneficiaries will receive any death benefits above and beyond the outstanding loan amount.

Additionally, since life insurance policy approval may take anywhere from a few days for simplified issue (non-medical) products to up to 4 weeks or more for fully underwritten (requires medical exam) policies, the application and approval timeline should be taken into consideration. It is best to work with an experienced independent agent who can make appropriate recommendations and facilitate the application process. Once your new life insurance policy is approved and inforce, you can initiate the collateral assignment process by reaching out to the insurer for instructions and required paperwork, as discussed above.

Key Steps in the Collateral Assignment Process

The following are key steps in the collateral assignment process for most insurance companies and lending institutions. It is important to ensure that you follow the specific instructions provided by your individual insurance company. Additionally, consideration of the policy approval timeline is also advised since life insurance underwriting can take several weeks to complete. 

• Determine lender requirements for collateral assignment related to proposed loan.
• Identify an existing policy or apply for a new policy, with appropriate death benefit.
• If applying for a new insurance policy, list personal beneficiaries, NOT the lender.
• Ensuring that new policy is inforce prior to requesting collateral assignment.
• Request forms required for collateral assignment from the insurance company.
• Complete required insurance company paperwork requesting collateral assignment.
• Once collateral assignment is complete, provide verification to lender as required.

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What Is a Collateral Assignment of Life Insurance?

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

A collateral assignment of life insurance is a conditional assignment appointing a lender as an assignee of a policy. Essentially, the lender has a claim to some or all of the death benefit until the loan is repaid. The death benefit is used as collateral for a loan.

The advantage to using a collateral assignee over naming the lender as a beneficiary is that you can specify that the lender is only entitled to a certain amount, namely the amount of the outstanding loan. That would allow your beneficiaries still be entitled to any remaining death benefit.

Lenders commonly require that life insurance serve as collateral for a business loan to guarantee repayment if the borrower dies or defaults. They may even require you to get a life insurance policy to be approved for a business loan.

Key Takeaways

• The borrower of a business loan using life insurance as collateral must be the policy owner, who may or may not be the insured.
• The collateral assignment helps you avoid naming a lender as a beneficiary.
• The collateral assignment may be against all or part of the policy's value.
• If any amount of the death benefit remains after the lender is paid, it is distributed to beneficiaries.
• Once the loan is fully repaid, the life insurance policy is no longer used as collateral.

How a Collateral Assignment of Life Insurance Works

Collateral assignments make sure the lender gets paid only what they are due. The borrower must be the owner of the policy, but they do not have to be the insured person. And the policy must remain current for the life of the loan, with the policy owner continuing to pay all premiums . You can use either term or whole life insurance policy as collateral, but the death benefit must meet the lender's terms.

A permanent life insurance policy with a cash value allows the lender access to the cash value to use as loan payment if the borrower defaults. Many lenders don't accept term life insurance policies as collateral because they do not accumulate cash value.

Alternately, the policy owner's access to the cash value is restricted to protect the collateral. If the loan is repaid before the borrower's death, the assignment is removed, and the lender is no longer the beneficiary of the death benefit.

Insurance companies must be notified of the collateral assignment of a policy. However, other than their obligation to meet the terms of the contract, they are not involved in the agreement.

Example of Collateral Assignment of Life Insurance

For example, say you have a business plan for a floral shop and need a $50,000 loan to get started. When you apply for the loan, the bank says you must have collateral in the form of a life insurance policy to back it up. You have a whole life insurance policy with a cash value of $65,000 and a death benefit of $300,000, which the bank accepts as collateral.

So, you then designate the bank as the policy's assignee until you repay the $50,000 loan. That way, the bank can ensure it will be repaid the funds it lent you, even if you died. In this case, because the cash value and death benefit is more than what you owe the lender, your beneficiaries would still inherit money.

Alternatives to Collateral Assignment of Life Insurance

Using a collateral assignment to secure a business loan can help you access the funds you need to start or grow your business. However, you would be at risk of losing your life insurance policy if you defaulted on the loan, meaning your beneficiaries may not receive the money you'd planned for them to inherit.

Consult with a financial advisor to discuss whether a collateral assignment or one of these alternatives may be most appropriate for your financial situation.

Life insurance loan (policy loan) : If you already have a life insurance policy with a cash value, you can likely borrow against it. Policy loans are not taxed and have less stringent requirements such as no credit or income checks. However, this option would not work if you do not already have a permanent life insurance policy because the cash value component takes time to build.

Surrendering your policy : You can also surrender your policy to access any cash value you've built up. However, your beneficiaries would no longer receive a death benefit.

Other loan types : Finally, you can apply for other loans, such as a personal loan, that do not require life insurance as collateral. You could use loans that rely on other types of collateral, such as a home equity loan that uses your home equity.

What Are the Benefits of Collateral Assignment of Life Insurance?

A collateral assignment of a life insurance policy may be required if you need a business loan. Lenders typically require life insurance as collateral for business loans because they guarantee repayment if the borrower dies. A policy with cash value can guarantee repayment if the borrower defaults.

What Kind of Life Insurance Can Be Used for Collateral?

You can typically use any type of life insurance policy as collateral for a business loan, depending on the lender's requirements. A permanent life insurance policy with a cash value allows the lender a source of funds to use if the borrower defaults. Some lenders may not accept term life insurance policies, which have no cash value. The lender will typically require the death benefit be a certain amount, depending on your loan size.

Is Collateral Assignment of Life Insurance Irrevocable?

A collateral assignment of life insurance is irrevocable. So, the policyholder may not use the cash value of a life insurance policy dedicated toward collateral for a loan until that loan has been repaid.

What is the Difference Between an Assignment and a Collateral Assignment?

With an absolute assignment , the entire ownership of the policy would be transferred to the assignee, or the lender. Then, the lender would be entitled to the full death benefit. With a collateral assignment, the lender is only entitled to the balance of the outstanding loan.

The Bottom Line

If you are applying for life insurance to secure your own business loan, remember you do not need to make the lender the beneficiary. Instead you can use a collateral assignment. Consult a financial advisor or insurance broker who can walk you through the process and explain its pros and cons as they apply to your situation.

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What Is the Collateral Assignment of a Life Insurance Policy?

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•   1. What Is a Life Insurance Assignment?
•   2. How to Assume a Promissory Note
•   3. Assignment of Deed of Trust Vs. Deed or Grant Deed

Collateral assignment refers to the contractual designation of a company or other entity as beneficiary of a life insurance policy. This arrangement is fairly common among business owners in search of additional funds or credit. Many lenders will consider the assignment of life insurance alongside other factors when evaluating creditworthiness for business financing applications.

A collateral assignment is a term used to describe the contractually agreed status of a company or other organization as the beneficiary for a life insurance policy.

Exploring The Basic Contract

Life insurance collateral assignments have become commonplace and the documents necessary to enact these agreements can be obtained directly from the life insurance company. These assignment templates contain widely accepted language and terms, and after filling in the blanks regarding the specific details of the arrangement, the forms must be signed by both the policy owner and lender.

However, no obligation exists requiring the use of boilerplate documents; collateral assignments may be negotiated and created by the parties involved. The insurance company remains disinterested in the assignment arrangements, except for its obligation to uphold the terms of a properly executed contract. Some lenders even require an assignment of life insurance as a condition of loan approval. When leveraged properly, a collateral assignment can help business owners obtain funding that would otherwise be unattainable.

Evaluating Death Benefits

Typical insurance assignments focus on a policy's death benefit as the source of collateral for a loan. The agreement places the lender in the primary beneficiary position, ensuring the recovery of an outstanding loan balance if the owner dies before final repayment is made.

If the policy's death benefit exceeds the dollar amount of the collateral assignment, the remaining proceeds are distributed to the owner's listed beneficiaries as per the original policy documents.

Assessing the Cash Value

Although less common, some collateral assignments involve the cash value of existing permanent life insurance policies. Under this type of arrangement, the lender is granted permission to access cash value and make withdrawals if the borrower defaults on loan payments.

Additionally, these agreements restrict the policy owner's access to the cash value to protect the integrity of the lender's new collateral. Cash value-focused collateral assignments provide the added benefit of allowing borrowers to keep current beneficiary designations without a reduction in benefits.

Termination of the Policy

Collateral assignment contracts require the policy owner to keep coverage in force for the length of the loan term. If the policy is cancelled or terminated for non-payment, the lender may consider the loan contract violated in the absence of collateral. To protect the lender from such situations, most assignment agreements institute the delivery of duplicate policy correspondence to the lender.

Non-payment notices or other policy change documents would allow the lender to proactively intervene and prevent termination. In such cases the lender might be permitted to add payments made to the insurance company to the outstanding loan principle.

Rescinding the Agreement

Once the terms of the loan have been fulfilled and repayment completed, the assignment must be removed from the policy. Rescinding the agreement requires the borrower and lender to acknowledge the fulfillment of the loan terms and removal of the lender's position as beneficiary.

After the life insurance company receives the collateral assignment rescission documents, all access to cash value and policy documents is returned exclusively to the owner.

• MEG Financial: Common Uses of Business Owner Life Insurance
• Collateral Assignment Agreement
• ASSIGNMENT | definition in the Cambridge English Dictionary

Gregory Gambone is senior vice president of a small New Jersey insurance brokerage. His expertise is insurance and employee benefits. He has been writing since 1997. Gambone released his first book, "Financial Planning Basics," in 2007 and continues to work on his next industry publication. He earned a Bachelor of Science in psychology from Fairleigh Dickinson University.

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US Collateral Account Best Practices

• Mark C. Dempsey ,
• Sean T. Scott ,
• Massimo Capretta ,
• Vincent R. Zuffante

A key component of the collateral package for subscription-backed credit facilities (each, a “Facility”) is the security interest an investment fund (each, a “Fund”) grants to the lender(s) under a Facility in the deposit or securities account established to hold the capital contributions received from the Fund’s investors (the “Collateral Account”). Although the Collateral Account in many Facilities may be a securities account, this Legal Update is limited to a discussion of deposit accounts as that term is defined in the applicable Uniform Commercial Code (the “UCC”). This Legal Update explores potential areas of concern for lenders associated with Collateral Account documentation and follows with considerations for drafting and best practices used to mitigate, and ideally avoid, potential issues associated with Collateral Accounts.

Under the UCC in effect in the State of New York (the “NY UCC”), in order to perfect a security interest in a Collateral Account which is a deposit account, the lender (as the secured party) must establish and maintain control of the account. 1 The NY UCC provides the following methods a lender may use to establish the control required for perfecting a security interest in a deposit account: (1) the lender is the bank maintaining the deposit account (the “Account Bank”), (2) the lender, the Fund and the Account Bank enter into a written agreement pursuant to which the Account Bank agrees to follow the lender’s instructions regarding the funds in the account without further consent from the Fund, (3) the lender is the customer of the Account Bank with respect to the deposit account, (4) the name on the account is the name of the lender or indicates that the lender has a security interest in the account, or (5) another person has control of the account on behalf of the lender or, if the person is already in control of the account, acknowledges that it has control on behalf of the lender. NY UCC § 9-104(a)(1)–(5).

In most Facilities, the lender establishes control of the Collateral Account by serving as the Account Bank or entering into a triparty control agreement with the Fund and the Account Bank, as described in NY UCC Section 9-104(a)(2) above (each, a “Control Agreement”). The Control Agreement establishes the lender’s control over the Collateral Account for perfection purposes and specifies when the Account Bank will accept instructions relating to the funds in the account from the lender, the Fund or both. Although the Control Agreement provides the lender with the continuous control required for perfection, in practice, the lender may encounter issues maintaining and exercising its contractual rights in the Facility’s Collateral Account which cannot practically be addressed in the Facility documents or Control Agreement.

I. Risks for the Lender When the Collateral Account is Held at a Separate Account Bank

When the lender does not maintain the Collateral Account, potential risks for the lender include that the Account Bank will not act on the lender’s instructions regarding the Collateral Account in a timely manner, the Account Bank’s failure to comply with the lender’s instructions entirely and the early or unexpected closure of the Collateral Account by the Account Bank.

Timing Delays

Most Control Agreements provide the manner in which the lender may deliver instructions and notices to the Account Bank regarding the Collateral Account. Often, notices of exclusive control will be subject to the Account Bank’s specific procedures for delivery, including obtaining signatures from designated representatives of the lender and delivery of such notices to the Account Bank via overnight courier or facsimile. Due to internal administrative procedures at the Account Bank, delays of two or three business days may occur between the time an Account Bank receives instructions from the lender and the time the instructions are acted upon. Such delays could be problematic for the lender in situations where a default has occurred under the Facility documents and the lender has elected to exercise exclusive control of the Collateral Account to protect its collateral from unauthorized removal by a defaulting Fund. 2

The timing delays discussed above may be reduced or eliminated if the lender is the Account Bank, because this avoids the delays associated with the internal procedures of a separate institution. To protect the Facility’s collateral from unauthorized removal by the Fund, the Facility documents will typically include provisions restricting the Fund’s ability to withdrawal funds from the Collateral Account once a default has occurred. If the lender is not the Account Bank, the Control Agreement should expressly limit the amount of time the Account Bank has to comply with a notice of exclusive control. Finally, any procedures for the delivery of instructions and notices of exclusive control should be expressly set forth in the Control Agreement and followed exactly by the lender to avoid potential delays.

Noncompliance Risk

In addition to the timing issues discussed above, there may be circumstances in which the Account Bank chooses not to comply with the lender’s instructions regarding the Collateral Account in order to avoid violating applicable law or regulations, or incurring liability to the Fund or third parties. For example, the Account Bank may be hesitant to comply with the lender’s instructions if it suspects the instructions are premature or improper, or where the Account Bank has concerns that acting on the instructions may violate applicable insolvency or bankruptcy laws. To address these concerns, the Control Agreement should include a waiver of liability of the Account Bank for actions taken pursuant to instructions given by the lender as well as language making it clear the Account Bank has no obligation to investigate the circumstances prompting the lender’s delivery of a notice of exclusive control, and can rely on any such notice that it receives. Including such provisions is helpful, as it may encourage the Account Bank’s compliance with the lender’s instructions by removing its concern of incurring liability to the Fund when acting on such instructions. However, most Account Banks will require a similar waiver of liability from the lender, which could reduce the likelihood that the Account Bank will comply with the lender’s instructions pursuant to the Control Agreement where there are disputes around the default or other contentious circumstances.

Unexpected Collateral Account Closure

The Account Bank’s ability to close the Collateral Account or terminate the Control Agreement could also present risk to the lender. Generally, the Account Bank will reserve the right to close the Collateral Account without cause upon providing the required advance notice to all parties to a Control Agreement. The Account Bank may also be permitted to immediately close the Collateral Account if the Fund defaults in its obligations to the Account Bank, including the nonpayment of bank fees described in the Control Agreement (and possibly if the Fund is in default on a separate obligation to the Account Bank). Regardless of the cause, an unexpected account closure may result in the lender losing control of the account collateral and, therefore, perfection of its security interest in the Collateral Account under the NY UCC.

To avoid unexpected account closures, the applicable Control Agreement should expressly identify the circumstances under which the Account Bank will be able to close the Collateral Account and should require advance notice to all parties of any impending closure. The Fund and the lender should also agree in the Facility documents that in the event of a Collateral Account closure, the Fund will open a new Collateral Account within a specified time frame and execute a new control agreement granting the lender similar or identical rights in the new Collateral Account. In the event the Collateral Account is unexpectedly closed, the lender could itself open a replacement Collateral Account; however, the lender should be aware that the Fund’s governing documents or separate agreements between the Fund and its investors may excuse investors from contributing capital to an account not held by the Fund. For this reason, in the event of a default under the Facility documentation, the lender should ensure that the appropriate power-of-attorney is included in the Facility documents, allowing it to open accounts on behalf of the Fund.

Subordination and Indemnification

An additional risk for lenders relating to Collateral Accounts is that many Control Agreements include provisions allowing the Account Bank to recover obligations the Fund owes to the Account Bank by withdrawing such amounts from the Collateral Account, often without having to recognize any subordination to the lender’s security interest. Such obligations may include the Account Bank’s right to charge the Collateral Account for fees or charges due with respect to the Account, including any returned deposits originating from the account. Even if a Control Agreement does not expressly contain such provisions, an Account Bank may have a common law right to offset such owed amounts due it against funds on deposit with the Account Bank. As such, to the extent practicable, the Control Agreement should provide that the Account Bank subordinates any such rights to collect or offset amounts owing it to the lender’s security interest in the Collateral Account (and amounts on deposit therein). The lender should also consider negotiating the Control Agreement to expressly limit its own indemnification liability to losses resulting from actions taken by the Account Bank in compliance with the lender’s instructions or losses occurring after a notice of exclusive control is given effect, and should be further limited to amounts the lender actually received from the account.

II. Eligible Institutions and Insolvency Risk

Another potential risk for the lender is that the Account Bank maintaining the Collateral Account may itself become insolvent and be placed into a receivership or conservatorship. In the United States, most banks’ deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”). In the event of bank failure and resulting receivership or conservatorship, the FDIC, as receiver or conservator, will reimburse the depositors of the failed bank for the value of their insured deposits (up to $250,000 for a single account) and will coordinate a sale of the failed bank’s assets to repay the bank’s remaining uninsured deposit obligations. To the extent a depositor has deposits in excess of the federally insured amount, the depositor has a claim against the failed institution’s receivership estate for the uninsured amount, which will be repaid with the proceeds recovered from the liquidation of the failed institution’s assets. As a result, repayment of uninsured deposits could be delayed considerably depending on the timing of the liquidation proceeding with respect to the bank’s assets. In addition, while uninsured depositors are paid before other unsecured creditors, full recovery for uninsured depositors is not guaranteed.

To minimize the risk of insolvency by the Account Bank, the Fund and the lender may specify in the Facility documents that the Collateral Account be held only at an institution meeting specified criteria (an “Eligible Institution”). Generally, the Eligible Institution must hold a minimum threshold dollar amount in capital reserves, possess maximum FDIC deposit insurance coverage, be subject to state or federal regulatory oversight and receive minimum credit ratings from approved ratings agencies. Similarly, where the Account Bank is located outside of the United States, the Facility documents may require the Account Bank to satisfy certain requirements, including minimum credit ratings.

III. Collateral Account Monitoring

Timely and accurate financial reporting enables the lender to monitor the financial condition of the Fund and the status of the Facility’s collateral. For this reason, the Facility documents may require the Fund to agree to promptly deliver information relating to the collateral, including capital call notices, notices of transfers, investor downgrades and similar requirements. To enhance its ability to effectively monitor the collateral within the Collateral Account, the lender may require electronic account access or periodic delivery of account statements by the Fund. In the event the Fund fails to provide the information requested, the Control Agreement should include language providing the Fund’s consent to the Account Bank’s delivery of such information directly to the lender.

While the suggestions for drafting and best practices contained in this Legal Update may assist a lender in mitigating certain problems associated with Collateral Accounts in Facilities, the facts and circumstances of each Facility may call for variations of any approach suggested above. For this reason, each lender or other secured party should confer with experienced counsel to ensure that the applicable Facility documents and Control Agreement are drafted to address its specific needs in addition to the risks for lenders relating to Collateral Accounts.

1 Under NY UCC § 9-314, security interests in deposit accounts are perfected when the secured party establishes control of the collateral and remain perfected only as long as the lender continues to have control.

2 For further discussion on default remedies, see “ Default Remedies under Subscription Credit Facilities: Guide to the Foreclosure Process ” in the Mayer Brown Fund Finance Market Review , Spring 2018 .

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Collateral assignment of life insurance

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Secured loans are often used by individuals needing financial resources for any reason, whether it’s to fund a business, remodel a home or pay medical bills. One asset that may be used for a secured loan is life insurance. Although there are pros and cons to this type of financial transaction, it can be an excellent way to access needed funding. Bankrate’s insurance editorial team discusses what a collateral assignment of life insurance is and when it might—or might not—be the best loan option for you.

What is collateral assignment of life insurance?

A collateral assignment of life insurance is a method of securing a loan by using a life insurance policy as collateral . If you pass away before the loan is repaid, the lender can collect the outstanding loan balance from the death benefit of your life insurance policy . Any remaining funds from the death benefit would then be disbursed to the policy’s designated beneficiary(ies).

Why use life insurance as collateral?

Collateral assignment of life insurance may be a useful option if you want to access funds without placing any of your assets, such as a car or house, at risk. If you already have a life insurance policy, it can be a simple process to assign it as collateral. You may even be able to use your policy as collateral for more than one loan, which is called cross-collateralization, if there is enough value in the policy.

Collateral assignment may also be a credible choice if your credit rating is not high, which can make it difficult to find attractive loan terms. Since your lender can rely on your policy’s death benefit to pay off the loan if necessary, they are more likely to give you favorable terms despite a low credit score.

Pros and cons of using life insurance as collateral

If you are considering collateral assignment, here are some pros and cons of this type of financial arrangement.

• It may be an affordable option, especially if your life insurance premiums are less than your payments would be for an unsecured loan with a higher interest rate.
• You will not need to place personal property, such as your home, as collateral, which you would need to do if you take out a secured loan. Instead, if you pass away before the loan is repaid, lenders will be paid from the policy’s death benefit. Any remaining payout goes to your named beneficiaries.
• You may find lenders who are eager to work with you since life insurance is generally considered a good choice for collateral.
• The amount that your beneficiaries would have received will be reduced if you pass away before the loan is paid off since the lender has first rights to death benefits.
• You may not be able to successfully purchase life insurance if you are older or in poor health.
• If you are using a permanent form of life insurance as collateral, there may be an impact on your ability to use the policy's cash value during the life of the loan. If the loan balance and interest payments exceed the cash value, it can erode the policy's value over time.

What types of life insurance can I use as collateral for a loan?

You may use either of the main types of life insurance— term and permanent —for collateral assignment. If you are using term life insurance, you will need a policy with a term length that is at least as long as the term of the loan. In other words, if you have 20 years to pay off the loan, the term insurance you need must have a term of at least 20 years.

Subcategories of permanent life insurance, such as whole life , universal life and variable life, may also be used. Depending on lender requirements, you may be able to use an existing policy or could purchase a new one for the loan. A permanent policy with cash value may be especially appealing to a lender, considering the added benefit of the cash reserves they could access if necessary.

How do I take out a loan using a collateral assignment of life insurance?

If you already have enough life insurance to use for collateral assignment, your next step is to find a lender who is willing to work with you. If you don’t yet have life insurance, or you don’t have enough, consider the amount of coverage you need and apply for a policy . You may need to undergo a medical exam and fill out an application .

Once your policy has been approved, ask your insurance company or agent for a collateral assignment form, which you will complete and submit with your loan application papers. The form names your lender as an assignee of the policy—meaning that they have a stake in its benefits for as long as the loan exists. You will also name beneficiaries or a single beneficiary, who will receive whatever is left over from the death benefits after the loan is repaid.

Note that you will need to stay current on your life insurance premium payments while the collateral assignment is active. This will be stated in the loan agreement, and failure to do so could have serious repercussions.

Alternatives to life insurance as collateral

If you are considering a collateral assignment of life insurance, there are a few alternative funding options that might be worth exploring. Since many factors determine each option, working with a financial advisor may be the best way to find the ideal solution for your situation.

Unsecured loan

Depending on your situation, an unsecured loan may be more affordable than a secured loan with life insurance as collateral. This is more likely to be the case if you have good enough credit to qualify for a low-interest rate without having to offer any type of collateral. There are many different types of unsecured loans, including credit cards and personal loans.

Secured loan

In addition to life insurance, there are other items you can use as collateral for a secured loan . Your home, a car or a boat, for example, could be used if you have enough equity in them. Typically, secured loans are easier to qualify for than unsecured, since they are not as risky for the lender, and you are likely to find a lower interest rate than you would with an unsecured loan. The flip side, of course, is that if you default on the loan, the lender can take the asset that you used to secure it and sell it to recoup their losses.

Life insurance loan

Some permanent life insurance policies accumulate cash value over time that you can use in different ways. If you have such a policy, you may be able to partially withdraw the cash value or take a loan against your cash value. However, there are implications to using the cash value in your life insurance policy, so be sure to discuss this solution with a life insurance agent or your financial advisor before making a decision.

Home equity line of credit (HELOC)

A home equity line of credit (HELOC) is a more flexible way to access funds than a standard secured loan. While HELOCs carry the downside of risking your home as collateral, you retain more control over the amount you borrow. Instead of receiving one lump sum, you will have access to a line of credit that you can withdraw from as needed. You will only have to pay interest on the actual amount borrowed.

Frequently asked questions

What is the best life insurance company, what type of loans are collateral assignments usually associated with, what are other common forms of collateral, what are the two types of life insurance assignments.

Related Articles

Guaranteed issue life insurance

Life insurance death benefits

What does life insurance cover?

What is collateral insurance and how does it work?

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Schwab Account Agreement

View this notice in PDF format

Please read this important information carefully.

Information about your:

Cash Account

• Margin and Short Account
• Sweep Funds

Schwab StockBuilder Plan ®

The most recent account agreement information is available at www.schwab.com/accountagreements .

Introduction

This Agreement contains important terms and conditions that apply to the Schwab Account and Schwab brokerage services. Please read this Agreement carefully and retain it for future reference.

Charles Schwab & Co., Inc. is a member firm of the Financial Industry Regulatory Authority (FINRA). As such, we are required to inform you of the availability of a FINRA Investor Brochure, which includes information on the FINRA Public Disclosure Program. You may contact the FINRA public hotline at 1-800-289-9999 or on the Internet at www.finra.org .

Definitions

As used in the Schwab Account Agreement, the terms listed below are defined as follows:

• Account Agreement —The agreement you make with us when you open the Schwab Account, consisting of the Account Application, this Account Agreement for your Schwab Account, and any other written agreements between you and us concerning the Schwab Account, all as amended from time to time.
• Account Application —The application you submit to open a Schwab Account.
• Accounts of Your Household —Accounts of Your Household are accounts that have been linked in accordance with Schwab’s householding guidelines. Schwab makes a reasonable effort to automatically link qualified accounts of persons with the same last name at the same home address, including accounts held at certain Schwab affiliates. You are responsible for identifying accounts that should be linked for purposes of determining Accounts of Your Household and Household Calculations. Schwab aggregates the balances and activities of Accounts of Your Household to determine for brokerage accounts: commission rates, whether those accounts may qualify for certain fee waivers, and whether those accounts may qualify for certain benefits or features (“Household Calculations”). Schwab may consider other accounts to be in your household upon your request if account holders are in the same family, there is a dependent relationship, or in certain other similar instances at Schwab’s discretion. For example, if you or other members of your family who reside at your home address have a different last name (including a spouse, if applicable), you need to contact Schwab to request that we combine your accounts for purposes of Household Calculations. If an account is added to the Accounts of Your Household, any impact on Household Calculations may not take effect until the following quarter.
• Bank Sweep Feature —The Cash feature through which Schwab sweeps the Free Credit Balance in your account to deposit accounts at one or more banks. The Bank Sweep feature includes both the Bank Sweep and Bank Sweep for Benefit Plans.
• Business Day —Business Day is any day that the New York Stock Exchange and the Federal Reserve Bank of New York are open. (Although our offices may be open on certain bank holidays, these days are not considered Business Days for purposes relating to the transfer of funds.)
• Cash Account —The basic brokerage account we offer.
• Cash Features —Subject to eligibility requirements, the options that we offer to you for your uninvested cash: the Schwab One ® Interest feature, the Bank Sweep feature, and the Money Fund Sweep feature.
• Day Trading —Regular transmission of intraday orders to effect both purchase and sale transactions in the same security or securities.
• Debit Balance —An account balance representing money owed to us.
• Electronic Fund Transfer (EFT) —Any transfer of funds initiated or authorized by you through an electronic payment system such as the Automated Clearing House (ACH) Network.
• Free Credit Balance —The sum of the cash balance in your Cash Account and the available cash balance in your Margin and Short Account. (When a cash balance in your Margin and Short Account is collateral for your obligation to cover short securities and/or option positions, it is not available for your use or included in your Free Credit Balance.)
• Good Delivery —The delivery to us of freely transferable securities (that is, properly registered, endorsed, and fully negotiable stock or bond certificates).
• Household Balance —Household Balance means the total combined value, over a given period of time, in the Accounts of Your Household, including margin balances and other outstanding debit balances like mortgage, Home Equity Line of Credit (HELOC), and credit card balances. For the purpose of determining commission rates and fee waivers, Schwab adds up your daily Household Balances then divides the total amount by the number of days in the applicable period.
• Household Calculations —Schwab’s calculation of fees, fee waivers, and other benefits and features that apply to the Accounts of Your Household.
• Long Sale —The sale of a security that you own.
• Margin and Short Account Feature —Adding this feature to your Schwab Account allows you to borrow funds from Schwab, using acceptable securities or cash as collateral for the loan. You must have this feature to make short-sale transactions or to trade options.
• Money Fund Sweep feature —The Cash Feature that sweeps the Free Credit Balance in your Account into a Schwab ® Sweep Money Fund.
• Other Property —Money, instruments (including certificates of deposit and other financial instruments) and any other property or rights.
• Schwab Sweep Fund —Each of the Schwab money market funds offered as part of the Money Fund Sweep feature.
• Securities —Securities of any kind and nature, including those you may deposit or redeposit with us for any reason (including safekeeping), as well as uncertificated securities, such as money market fund shares.
• Short Sale —The sale of a security you do not own at the time the order is placed.
• Sweep —The automatic investment of a Free Credit Balance by Schwab into a Cash Feature other than the Schwab One ® Interest feature.
• Sweep Bank —An FDIC-insured depository institution that may be, but is not required to be, affiliated with The Charles Schwab Corporation, at which interest-bearing Deposit Accounts are maintained on your behalf.
• Schwab Account/The Schwab Account —The basic brokerage account at Schwab that allows you to buy and sell stocks, bonds, mutual funds, and other investments. This account includes the Cash Account and Margin and Short Account, if any, opened in your name.
• To close any or all transactions —To complete or liquidate any or all unsettled transactions; to cancel open orders; to sell any or all long securities and other property, including options; to buy any or all securities and other property that are short in the Schwab Account or required for delivery against any sale order or other obligation; and to purchase option contracts to close any outstanding short option positions.
• We/Us/Our/Schwab —Charles Schwab & Co., Inc.
• You/Your/Account Holder —Each person who signs the Account Application.

1. Provision of Services

To open a Schwab Account, you complete an Account Application. When we approve your Account Application, we will open a Cash Account for you and act as your broker to purchase and sell securities for your Account based on your instructions. Unless we otherwise agree with you in writing, Schwab does not monitor your account(s) or investments and has no obligation to update an investment recommendation, financial advice, or financial plan we may give you. Such recommendation, financial advice, or financial plan only applies at the point in time we provide it to you. When transferring assets from another firm, please be advised that we will not accept or honor any oral or written instructions from you to purchase or sell securities prior to our actual receipt of your assets and the completion of the transfer process. You may initiate orders relating to the transferred cash and/or securities only after the transfer process has been completed and the assets have been received by Schwab. With our approval, you may elect to add a Margin and Short Account Feature and to trade options in your Schwab Account. If you wish to transfer short positions from another firm, we will attempt to lend you securities to cover your transaction at the other firm. If we lend you securities, you can be required to pay us a fee for as long as you maintain the short position. The fee can change on a daily basis. If we are unable to obtain shares to lend to you, you will not be permitted to transfer the short position to your Schwab Account.

2. Services and Fees

Enrollment in a service.

Schwab offers a number of account types, service features and benefit packages, each of which is referred to as a “Service” for purposes of your Account Agreement. Each Service can have unique fees and additional terms and conditions. By enrolling in a Service or otherwise using a Service and not discontinuing your enrollment in that Service, you agree to abide by the terms and conditions or supplemental agreement (“Terms of Service”) applicable to such Service, in addition to this Account Agreement.

Householding Guidelines

Unless you notify Schwab otherwise, Schwab will make a reasonable effort to link qualified accounts of persons with the same last name at the same home address. Schwab may link other accounts upon your request if account holders are in the same family, there is a dependent relationship, or in certain other similar instances at Schwab’s discretion. Certain accounts may not be eligible for linking. The assets of linked accounts are not commingled, and all clients linking accounts retain control over, and responsibility for, their individual accounts.

Schwab is not responsible for identifying accounts that are eligible to be linked for purposes of determining the Accounts of Your Household. It is the obligation of fiduciaries to notify Schwab of accounts that should not be linked. You agree to contact Schwab if you are acting in a fiduciary capacity and want your fiduciary account aggregated as part of the Household Calculation or excluded from the Household Calculation. You may contact Schwab or your independent investment advisor (“advisor”) for more information or to give Schwab instructions with respect to linking eligible accounts.

Certain fees and other items relating to your account are calculated by considering (i.e., aggregating) activities and balances in the Accounts of Your Household. You acknowledge and agree that it is your responsibility to review the applicable Pricing Guide or fee schedule, your account statements, and to consult with other members of your household who may have accounts with Schwab to determine whether Schwab should update or change its Household Calculations. While Schwab will make a good faith effort to identify and consider on its own the Accounts of Your Household in order to calculate any potentially applicable fee waivers, you acknowledge and agree that Schwab is not responsible for any claimed error in making Household Calculations if you fail to contact Schwab with concerns or questions about how Schwab is making Household Calculations. If there are other holders of Accounts of Your Household, you understand and acknowledge that Schwab may use general information about your Household Balance and activities to provide or explain Household Calculations or Services available to you and those other holders of Accounts of Your Household. If you do not want your account data included with data from other Accounts of Your Household for such purposes, you agree to contact Schwab.

Fees and Incorporation of the Pricing Guides

Fees for particular Services and Accounts are generally set forth in a pricing guide or fee schedule, such as the Charles Schwab Pricing Guide or other pricing guide Schwab may provide as applicable to your account (collectively, the “Pricing Guides,” and individually, a “Pricing Guide” ). The Pricing Guides are companions to this Account Agreement and are incorporated as part of this Account Agreement.

You agree to pay the Service fees as well as other fees that apply based on your transactions, activities, and requests, as set forth in the Pricing Guide applicable to your account or as Schwab otherwise informs you. These other fees can include, but are not limited to, the following:

• Commissions, transactions (including mutual funds), and order handling fees;
• Account service fees;
• Cashiering services;
• Custody of certain assets;
• Reports relating to your account requested by you or that are required by law;
• Fees associated with transactions in Schwab proprietary non-sweep money funds;
• Termination and transfer fees; and
• Charges for failing to maintain minimum balance requirements.

Some Services can have a special fee schedule that is not included in the applicable Pricing Guide . If so, Terms of Service that you receive at the time you receive or enroll in the Service will include that additional pricing information. You agree to review the Terms of Service and not to use or not to continue use of the Service if you do not agree to pay the applicable fees.

You agree to pay all applicable fees, as well as any applicable federal, state and local taxes. Schwab’s failure to deduct fees from your Account at the time you incur those fees does not waive Schwab’s right to deduct those fees from your Account at a later time.

Schwab can modify a Pricing Guide or fee schedule applicable to a Service at any time. Schwab will provide notice to you of any change in fee or new fee applicable to you in accordance with applicable laws and regulations. Your continued use of your Account or a Service following such a change in fee or new fee will evidence your consent.

Some fees may be charged to a debit or credit card. By authorizing Schwab to charge a debit or credit card, you are authorizing Schwab or its respective designated representatives or agents to automatically continue charging that card (or any replacement credit card account if the original card is renewed, lost, stolen, or changed for any reason by the credit-issuing entity, and such entity informs Schwab of such new replacement card account) for all fees and charges associated with your transactions or the products or Services you receive.

Schwab reserves the right, but has no obligation, to negotiate different prices or arrangements than those described in a Pricing Guide or elsewhere with account holders and with unaffiliated third parties acting as agents for certain account holders.

Transfer (Out) Fee and Account Minimums

There are no account minimums to open your account. Schwab can establish from time to time minimum balance requirements to open an Account. Other minimums may apply to certain types of special accounts such as Custodial and College Saver accounts. The minimum deposit may consist of check, Electronic Fund Transfer and/or marginable securities. Schwab can charge a fee when you request a transfer of assets from the Account to another financial institution (a “TOA”), as set forth in the applicable Pricing Guide or fee schedule. A TOA occurs when you request (either personally or through another financial institution) that Schwab transfer securities or cash out of the Account. A TOA of all the assets in the Account is a “full TOA”; a TOA in any amount less than this is a “partial TOA.” Schwab reserves the right to later charge fees or waive the minimum or fees on any Account in circumstances that we deem appropriate.

If your account falls below the minimum value required to open that account, you authorize us to take such actions as are appropriate, in our discretion, to close your account. Unless there is no balance in your account, you will be given notice prior to our closing your account. You authorize us to liquidate shares of any security, including, but not limited to, shares of any mutual funds or other entities whose shares are in a continuous offering (“funds”) held for you that are not transferred to the issuer for any reason. Upon closing your account, we will either mail to you certificates or request a book-entry statement from the agent for nonfund securities held for you (if the physical certificates are being issued and transferred by the company and/or the Transfer Agent) or a check reflecting the cash balance in your account at the time it is closed, or both, in our sole discretion. If after your account is closed for any reason, securities or other property from any source are credited to your account, you authorize us to mail to you either certificates for nonfund securities or a check reflecting the cash balance in your account, or both. In computing the cash balance of your account at the time it is closed, we reserve the right to deduct any unpaid fees or charges (including account service fees), a certificate processing fee or other charges related to closing your account. You agree not to hold us responsible for any losses incurred in connection with the closing of your account.

You agree to pay our brokerage commissions and transaction, processing and other fees as they exist from time to time and apply to your Account for transactions and services you receive. Schwab’s failure to deduct fees from your account at the time you incur those fees does not waive Schwab’s right to deduct those fees from your account at a later time. Schwab may accept custody of certain assets not normally available through Schwab; we will charge fees for this service. You agree to pay all applicable state and local excise taxes.

Schwab does not charge transaction fees on purchases and redemptions of shares of certain registered investment companies or commissions on certain exchange-traded products that participate in certain Schwab programs and services. Schwab is able to effect these transactions without charging a transaction fee/commission because we receive remuneration from the registered investment company, exchange-traded product, and/or their affiliate for services rendered by Schwab in connection with these shares.

Additional information about Schwab’s financial relationships with mutual funds and exchange-traded products is available on www.schwab.com . Further information will be furnished upon request.

Schwab can charge transaction fees under certain circumstances for which the customer has been or will be notified, including, but not limited to, Schwab’s short-term redemption policy, as in effect from time to time.

You may obtain a copy of the applicable Pricing Guide or fee schedule by calling 1-800-435-4000, or if your Account is managed by an independent investment advisor, please contact your advisor directly, or call Schwab Alliance at 1-800-515-2157.

3. Rules and Regulations

Your Schwab Account and any transactions you make are subject to our house trading rules and policies and the following rules, regulations and policies, all as modified or amended from time to time:

• Applicable rules, regulations, customs and usage of any exchange, market, clearinghouse or self-regulatory organization;
• Applicable federal and state laws, rules, regulations and treaties.

4. Payment, Equity Deposit, Settlement and Liquidation

You agree to pay for all transactions you make and all authorized transactions in your Account. When you purchase securities on a cash basis, you agree to pay for the securities by settlement day. Unless you make other arrangements with your local Schwab office, we may use available funds in your Schwab Account to settle a transaction.

We may require an equity deposit or full payment before we accept your order. When you sell long securities, you must own the securities when you place the order. You agree to make good delivery of the securities you are selling by settlement day.

For our protection or to satisfy your obligations to us, we can, at our discretion and without prior demand or notice , sell or otherwise liquidate all or any part of the Securities and Other Property, securing your obligations or closing any or all transactions in your Schwab Account.

For instance, if you do not make good delivery of your securities when making a sale, or if you do not tender the total purchase price when making a purchase, we may take appropriate steps to complete, cancel or liquidate the transaction. This may include purchasing or borrowing the securities necessary to make the delivery. Failure to make good delivery includes the deposit of securities by you which are later found to be restricted, canceled, reported lost or stolen, escheated, or otherwise not freely transferable.

You are responsible for all debits, costs, commissions and losses arising from any actions we must take to liquidate or close transactions in your Schwab Account, or from your failure to make timely good delivery of securities. If you know or suspect that you have received an overpayment of funds or securities, or if you know or suspect that Schwab has not yet collected from your account a fee you have incurred, you agree to notify Schwab, in writing, as soon as you learn of the overpayment or uncollected fee. You further agree not to remove the overpayment of funds or securities or the uncollected fee from the account, or to return the entire overpayment or uncollected fee to Schwab if it has already been removed from your account. You agree that you are required to return the full amount of the overpayment or uncollected fee to Schwab, notwithstanding any oral representations made by any Schwab representative to the contrary. If you fail to do so, you will become liable to Schwab not only for the amount of the overpayment or uncollected fee, but also for the interest and expenses associated with its recovery.

We can transfer Securities and Other Property from any non-retirement brokerage account in which you have an interest to any other non-retirement brokerage account in which you have an interest, regardless of whether there are other account holders on either account, in order to satisfy deficiencies in any such account or if we think your obligations in any such account are not adequately secured.

For our protection against credit risks and other conditions, we may, without prior notice, decline, cancel or reverse your orders or instructions, or we may place trading, disbursement and other restrictions on your account.

If we hold for you bonds or preferred stock in street name or bearer form that are callable in part, you agree to participate in an impartial lottery allocation system of the called securities, according to the rules of the Financial Industry Regulatory Authority.

You are responsible for payment of all fees charged to your account from time to time. You agree that Schwab can liquidate securities held in your account to cover such fees or other indebtedness in the event that there are no available funds in your account. You further agree to be responsible for all costs and commissions related to such liquidations. In addition, you agree that Schwab shall be entitled to apply any dividends, capital gains payments, interest payments or other incoming funds, such as funds that would otherwise be invested through the Automatic Investment Plan or dividend reinvestment, to cover fees or other indebtedness to Schwab.

5. Use of Account

You may not use your account or any account-related service to process gambling transactions, or to conduct any other activity, that would violate applicable law. If we are uncertain regarding the legality of any transaction, we may refuse the transaction or freeze the amount in question while we investigate the matter.

Notwithstanding the foregoing, with respect to any retirement plan brokerage custodial account (including a Company Retirement Account [CRA] or Personal Choice Retirement Account ® [PCRA]) subject to the terms of this Agreement, you as the plan’s Trustee or other applicable plan fiduciary or agent, further acknowledge and agree that Schwab has no responsibility for determining whether any transaction or investment would constitute a prohibited transaction, generate unrelated business taxable income, or constitute a listed transaction or reportable transaction, as any of those foregoing terms are defined in the Internal Revenue Code and regulations thereunder, or to inform you of the consequences and/or reporting requirements with respect to such transactions. Schwab will have no responsibility for determining whether an investment made in the Account earned income that is deemed to be unrelated business income which is subject to federal income tax, and will not prepare any returns or perform any tax reporting required as a result of liability incurred for tax on unrelated business taxable income.

6. Payment of Indebtedness

You agree to make payment of any indebtedness related to your Schwab Account, including, but not limited to, any such indebtedness that results from instructions provided to Schwab by you, your agent, or any attorney-in-fact under a power of attorney or advisor authorized to make transactions in your Schwab Account. We may elect anytime, with or without notice, to make any debit balance or other obligation related to your Account immediately due and payable. We may report any past-due Account to a consumer and/or securities credit reporting agency. We may also refer your Account to a collection agency.

7. Security for Indebtedness and Right of Setoff

Note: This section does not apply to any tax qualified accounts subject to the prohibited transaction rules of the Internal Revenue Code or ERISA, or any indebtedness arising therefrom.

As security for the repayment of all present or future indebtedness owed to us by any account holder under the Account Agreement or otherwise, each account holder grants to us a continuing security interest in and lien on, and a right of setoff with respect to, all Securities and Other Property that are, now or in the future, held, carried or maintained for any purpose in or through the Schwab Account, and, to the extent of such account holder’s interest in or through, any present or future account with us in which the account holder has an interest.

If you owe a debt to Schwab or our affiliate Charles Schwab Bank, SSB as the result of a transfer between an account of Schwab and Charles Schwab Bank, SSB where provisional credit has been granted and final settlement is not received, you agree that Schwab and Charles Schwab Bank, SSB are entitled to setoff such debt, in whole or in part, against assets in any account of Schwab or Charles Schwab Bank, SSB involved in such transfer without further notice.

8. Remittance

If a check or other item you remit to us is returned unpaid, we will charge a fee to your Schwab Account. We reserve the right to redeposit any checks that are returned unpaid the first time due to insufficient funds, or for any other reason, without prior notice. For our protection, we may restrict your ability to withdraw funds represented by a check or other item or to apply these funds to settle a securities transaction. Longer hold periods may apply to checks drawn on a foreign institution. Longer hold periods of Business Days apply to returned items that are redeposited.

9. Your Responsibility Concerning the Buy, Sale, Transfer or Deposit of Control, Restricted, or Unregistered Securities

Before instructing us to buy/sell/transfer/deposit securities that are: (a) “restricted securities” or securities of an issuer of which you are an “affiliate” (as those terms are defined in Rule 144/144(b)1 under the Securities Act of 1933); (b) securities that are being bought/sold in reliance on Rule 701, Rule 144A, Regulation D, or Regulation S under said Act; or (c) securities of which you and the issuer or its underwriter have entered into an agreement restricting the transferability of such securities (penny stock/micro-cap securities that do not trade on a national securities exchange are required to go through the acceptance review process), you agree to tell us the status of your restricted/control/micro-cap securities, including any restrictions (including contractual lock-up or blackout restrictions) on your ability to buy/sell/transfer/deposit such securities, and to promptly furnish whatever information and documents we need to comply with our regulatory duties.

You acknowledge that furnishing the necessary information and documents to Schwab does not constitute an order to buy/sell your restricted/control securities, and that you must place a separate order to buy/sell by telephone or using the Electronic Services. You agree that you are responsible for all costs, including the cost to repurchase or resell stock, if you buy/sell/transfer/deposit stock that is later found to be restricted or nontransferable.

You further acknowledge that proceeds from the sale of your restricted/control securities may not be made available to you for withdrawal or trading purposes until Schwab receives what it, in its sole opinion, considers to be adequate verification that your restricted/control shares have been transferred or cleared for transfer. Because restricted/control securities transactions require special handling by both Schwab and third parties, processing your transaction may require several weeks, during which time the price of your securities may fluctuate. You agree not to hold Schwab responsible for market fluctuations that may occur to the market price or settlement of your securities while your transaction is processed. You further agree not to hold Schwab liable for delays in the buy/sale (or settlement of such buy/sale) of your restricted/control securities resulting from the failure of issuer’s counsel to issue or approve any necessary legal opinion, the failure of the transfer agent to process your shares, or any other action or failure to act of a third party. You agree not to tender restricted/control securities as collateral for an obligation you owe us, unless you first obtain our prior written approval.

10. Corporate Actions

The securities in your account may be subject to mandatory and voluntary corporate actions. A mandatory corporate action affects all holders, and no decision is required from you. A voluntary corporate action will require an election from you before Schwab's cut-off date to indicate if and how you want to participate. You agree that you are responsible for knowing the features, rights, and terms of all securities in your account and that you are responsible for making election decisions in corporate actions.

Schwab is not obligated to notify you of any upcoming expiration or redemption dates or to take any other action on your behalf without specific instructions from you. You agree that Schwab is not liable for any losses associated with the expiration of rights arising out of or relating to your failure to act or to give instructions to Schwab to act on your behalf.

When you inform Schwab of your election in a corporate action, Schwab will ensure that your account is credited with your election when the corporate action is concluded, assuming all conditions of the offer have been met and elections have been accepted by the offeror. You agree and understand that Schwab may lend, or have already lent, the security subject to the corporate action; however, this will not affect the fact that your account will be credited with your election when the corporate action has concluded.

11. Your Responsibility for Understanding Terms of Securities

Certain securities may impart valuable rights that expire unless you take some action. For example:

• Warrants and stock purchase rights typically may be exercised only on or before a specified expiration date;
• Some convertible redeemable securities will be redeemed automatically unless you exercise your conversion rights before a specified redemption date;
• Some bonds may be redeemed, at the holder’s option, only during specified periods;
• Some securities may become the subject of tender or exchange offers, which are limited in time.

You are responsible for knowing the rights and terms of your securities and for taking action to realize the value of your securities.

12. Accuracy of Account Information

You represent and warrant that:

• You have attained the age of majority.
• You have supplied accurate information in your Account Application.
• No one, except the Account Holder listed on the Account Application (and if community property is held, the Account Holders’ spouse), has an interest in the Schwab Account.

In addition, you agree to notify us promptly in writing of any important change in the information you supply us on the Account Application. In particular, you agree to notify us if:

• You are or become a director, 10% beneficial shareholder, policy-making officer or otherwise an “affiliate” (as defined in Rule 144 under the Securities Act of 1933) of a publicly traded company; or
• You are or become affiliated with or employed by a securities exchange or corporation controlled by a securities exchange, or a member of a securities exchange or a securities association; or
• There are significant changes to the net worth, income level or employment status you listed on the Account Application.

13. Custodial Accounts

If the Account is opened under either the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act (UGMA or UTMA), the Custodian represents that all assets in the Account belong to the beneficiary and that the Custodian will only use the assets for the beneficiary’s benefit. The Custodian agrees to transfer and deliver to the beneficiary all securities and other property held in the Account promptly upon the beneficiary attaining the age specified by the governing state law for termination of the custodianship. The age of custodianship termination varies by state, although many states set the maximum age for termination at 21. If you do not indicate a termination age, the Account will be set up using the default age for termination in the Custodian’s state of residence. If the termination age selected is different from the state’s default age, the Custodian agrees and acknowledges that he (she) is responsible under UGMA or UTMA for determining the proper termination age and that Schwab is not responsible for doing so. If you have questions about the termination age, please consult your legal or tax adviser. Upon the termination of the custodianship, the Custodian agrees to provide Schwab, upon request, with the beneficiary’s address, phone number and any other information that may assist Schwab in contacting the beneficiary. The Custodian instructs Schwab, without further notice or instruction from the Custodian, to register the Account into the beneficiary’s name as soon as commercially practicable after the termination of the custodianship. In addition, the Custodian acknowledges that Schwab may restrict the Custodian’s access to the Account upon termination of the custodianship. Accounts with less than $100 in cash 30 days prior to the termination of the custodianship will be closed and a check for the value of the Account will be mailed to the Custodian. The check will be made payable to the Custodian for the benefit of the Beneficiary.

14. Joint or Multiple-Party Accounts

If there is more than one account holder, each account holder is jointly and severally liable for obligations arising under the Account Agreement or relating to the Schwab Account.

Each joint account holder has authority, acting individually and without notice to any other account holder, to deal with us as fully and completely as if the account holder is the sole account holder. We are authorized to follow the instructions of any joint account holder and to deliver funds, securities or other assets in the Schwab Account to any account holder or upon any account holder’s instructions. We are not responsible for determining the purpose or propriety of an instruction we receive from any account holder or for the disposition of payments or deliveries among joint account holders.

We reserve the right to require written instructions from all account holders, at our sole discretion. We reserve the right, but are not obligated, to place trading, disbursement and other restrictions on an account in the event we receive notice of a dispute among, or conflicting instructions from, joint account holders.

Any notice we send to one account holder will be notice to all account holders.

15. Account Conversion

If my Schwab Account is converted into another account at Schwab, whether by closing my Schwab Account and opening another account or otherwise, I agree to read and be bound by the terms of the agreement governing that other account as currently in effect at the time of conversion and as amended thereafter from time to time. I understand that account terms for such other account at Schwab, including account fees, other fees and charges, Cash Features, interest rates and returns on cash may be different and either more or less beneficial than comparable terms for my Schwab Account. If I do not receive or understand the agreement governing the account into which my Schwab Account is converted, I will notify Schwab.

16. Termination

You may close your Schwab Account anytime by giving us notice. We may in our sole discretion close your account or terminate any or all services rendered under the Account Agreement anytime and for any reason. Closing an Account or terminating services will not affect your obligations incurred prior to closure or termination.

17. Approval of Application, Credit Verification and Account Information

By submitting an Account Application, you authorize us to:

• Verify your identity, creditworthiness and other information (and your spouse’s if you live in a community-property state). To obtain verification, we may contact your employer (and your spouse’s, if applicable), obtain consumer and credit reports and make other inquiries, but we are not obligated to do so.
• Provide information about you and your Account to consumer and credit reporting agencies and collection agencies.
• Send text messages and make telephone calls, including telephone calls made using an automatic telephone dialing system and/or an artificial or prerecorded voice from Schwab relating to your Account, on any telephone number that you have provided to Schwab, either on your account application or otherwise.

You also authorize your wireless carrier (AT&T, Sprint, T-Mobile, US Cellular, Verizon, or any other branded wireless operator) to disclose information about your wireless account, such as your mobile number, name, address, email, network status, customer type, customer role, billing type, mobile device identifiers (IMSI and IMEI) and other subscriber status, subscriber method and device details, if available, to support identity verification, fraud avoidance and other uses in support of transactions for the duration of your business relationship with us. This information may also be shared with other companies to support your transactions with us and for identity verification and fraud avoidance purposes. See our Privacy Policy for how we treat your data.

You further authorize Schwab to obtain copies of your consumer and credit reports at its discretion, at any time, for reasons including, but not limited to, the following:

• To collect a debit balance in your Account;
• To investigate, detect and prevent fraud involving you or your Account;
• To help us evaluate whether to grant, extend or modify the terms and conditions of any credit you have applied for or received;
• If a deposit of funds or securities to your Account is returned.

We may deny your application to open an Account or may decline to offer you certain services available under the Account Agreement in our sole discretion for any reason.

18. Governing Law

This Agreement, and all future agreements you shall enter into with Schwab, unless otherwise indicated on such other agreement, shall be governed by the law (but not the choice of law doctrines) of the state of California. This is the case regardless of whether you reside or transact business with Schwab in California or elsewhere, except that the section entitled “Arbitration” shall be governed by the Federal Arbitration Act.

19. Account Control Certifications

You acknowledge that this Account Agreement and your Schwab Account may be subject to U.S. economic sanctions and embargo laws, including, but not limited to, the Trading with the Enemy Act, the International Emergency Act, and similar laws violations of which may be subject to U.S. civil and criminal penalties. You specifically represent and warrant that you have not been designated by the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) as a "specially designated national" or blocked person, that you have no reason to believe that you would be considered a blocked person by OFAC, and that you are not acting as agent of any such person. You also represent and warrant that you are not employed by, acting as agent of, or partially owned or controlled by a government, a government-controlled entity or a government corporation, except as you have indicated on your Account Application with Schwab.

20. Assignment

We may assign our rights and obligations under the Account Agreement, or may assign any loans that we have made to you (including the security interests securing such loans), to any subsidiary, affiliate or successor by merger or consolidation without notice to you, or to any other entity after 30 days’ written notice to you. If any loans we have made to you are assigned, you agree that we may comply with any entitlement orders originated by the assignee with respect to the collateral for such loans without any further consent from you. The Account Agreement is binding upon your and our heirs, executors, administrators, successors, and assigns; and it will benefit your and our successors and assigns, if any.

21. Arbitration

Required Arbitration Disclosures. Regulatory authorities require that any brokerage agreement containing a predispute arbitration agreement must disclose that this agreement contains a predispute arbitration clause. This Agreement contains a predispute arbitration clause. By signing an arbitration agreement, the parties agree as follows:

• All parties to this Agreement are giving up the right to sue each other in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed.
• Arbitration awards are generally final and binding; a party’s ability to have a court reverse or modify an arbitration award is very limited.
• The ability of the parties to obtain documents, witness statements and other discovery is generally more limited in arbitration than in court proceedings.
• The arbitrators do not have to explain the reason(s) for their award unless, in an eligible case, a joint request for an explained decision has been submitted by all parties to the panel at least 20 days prior to the first scheduled hearing date.
• The panel of arbitrators may include a minority of arbitrators who were or are affiliated with the securities industry.
• The rules of some arbitration forums may impose time limits for bringing a claim in arbitration. In some cases, a claim that is ineligible for arbitration may be brought in court.
• The rules of the arbitration forum in which the claim is filed, and any amendments thereto, shall be incorporated into this Agreement.

No person shall bring a putative or certified class action to arbitration, nor seek to enforce any predispute arbitration agreement against any person who has initiated in court a putative class action; or who is a member of a putative class who has not opted out of the class with respect to any claims encompassed by the putative class action until:

• the class certification is denied;
• the class is decertified; or
• the customer is excluded from the class by the court.

Such forbearance to enforce an agreement to arbitrate shall not constitute a waiver of any rights under this Agreement except to the extent stated herein.

Arbitration Agreement. Any controversy or claim arising out of or relating to (i) this Agreement, any other agreement with Schwab, an instruction or authorization provided to Schwab or the breach of any such agreements, instructions, or authorizations; (ii) the Account, any other Schwab account or Services; (iii) transactions in the Account or any other Schwab account; (iv) or in any way arising from the relationship with Schwab, its parent, subsidiaries, affiliates, officers, directors, employees, agents or service providers (“Related Third Parties”), including any controversy over the arbitrability of a dispute, will be settled by arbitration.

This arbitration agreement will be binding upon and inure to the benefit of the parties hereto and their respective representatives, attorneys-in-fact, heirs, successors, assigns and any other persons having or claiming to have a legal or beneficial interest in the Account, including court-appointed trustees and receivers. This arbitration agreement will also inure to the benefit of third-party service providers that assist Schwab in providing Services (“Third-Party Service Providers”) and such Third-Party Service Providers are deemed to be third-party beneficiaries of this arbitration agreement.

The parties agree that this arbitration agreement will apply even if the application to open the Account is denied and will survive the closure of your Account and/or the termination of services rendered under this Agreement.

Such arbitration will be conducted by, and according to the securities arbitration rules and regulations then in effect of, the Financial Industry Regulatory Authority (FINRA) or any national securities exchange that provides a forum for the arbitration of disputes, provided that Schwab is a member of such national securities exchange at the time the arbitration is initiated. Any party may initiate arbitration by filing a written claim with FINRA or such eligible national securities exchange. If arbitration before FINRA or an eligible national securities exchange is unavailable or impossible for any reason, then such arbitration will be conducted by, and according to the rules and regulations then in effect of, the American Arbitration Association (AAA). If arbitration before the AAA is unavailable or impossible for any reason, the parties agree to have a court of competent jurisdiction appoint three (3) arbitrators to resolve any and all disputes or controversies between or among the parties. Each party shall bear its own initial arbitration costs, which are determined by the rules and regulations of the arbitration forum. In the event of financial hardship, the arbitration forum may waive certain costs in accordance with such rules. At the conclusion of the hearing, the arbitrators will decide how to assess the costs of the arbitration among the parties.

Any award the arbitrator makes shall be final and binding, and judgment on it may be entered in any court having jurisdiction. This arbitration agreement shall be enforced and interpreted exclusively in accordance with applicable federal laws of the United States, including the Federal Arbitration Act. Any costs, fees or taxes involved in enforcing the award shall be fully assessed against and paid by the party resisting enforcement of said award.

In addition to the above provisions, if a party to this Agreement is or becomes a non-U.S. resident at the time of any controversy subject to this arbitration agreement, such party acknowledges and agrees to the following additional provisions:

• The rules of the organization administering the arbitration specifically provide for the formal designation of the place at which the arbitration is to be held.
• Entering into this Agreement constitutes consent to submit to the personal jurisdiction of the courts of the state of California, U.S.A., to interpret or enforce any or all of these arbitration provisions. Judgment on any arbitration award may be entered in any court having jurisdiction, or application may be made to such court for judicial acceptance of the award and an order of enforcement, as the case may be.
• The exclusive language to be used by the parties and the arbitrators in the arbitration proceedings shall be English. Any party wishing an interpreter shall make all arrangements directly with the interpreter and shall assume all costs of the service.
• If a party is a foreign government or state, state-owned or state-operated enterprise or other instrumentality of a foreign government or state, such party waives all rights of sovereign immunity and neither the Federal Act of State doctrine nor the doctrine of sovereign immunity shall apply insofar as any enforcement in courts located in the U.S.A. is concerned.

22. Losses Due to Extraordinary Events

We are not responsible and you agree not to hold us liable for losses caused directly or indirectly by conditions beyond our control, including, but not limited to: war, natural disasters, government restrictions, exchange or market rulings, strikes, interruptions of communications or data processing services, news or analysts’ reports, market volatility, or disruptions in orderly trading on any exchange or market.

23. Phone Channel Access

During non-business hours or during periods of peak demand, market volatility, systems upgrades or maintenance, or for other reasons, access to a Schwab representative via the phone channel may be limited or unavailable. Some clients may have their calls routed to automated telephone channels or informational messages. Schwab may assign calling teams and specific phone numbers to support certain client groups based on certain factors, which may include asset levels and trading history. These client groups may be given preference in reaching a Schwab representative. Failure to provide us with a valid account number could also limit your access to a Schwab representative.

24. Provision of Market Data

We may convey to you by telephone, electronic, or other means the last sale transaction data, bid and asked quotations, news reports, third-party analysts’ reports, research, and other information relating to securities and the securities markets (collectively referred to in this section as “market data”). We can charge a fee for providing this market data.

We obtain market data from securities exchanges and markets and from parties that transmit market data (collectively referred to in this section as “market data providers”). All market data is protected by copyright laws. We provide market data for your personal noncommercial use; you may not sell, market, or redistribute it in any way, unless you have entered into written agreements with the appropriate market data providers.

We receive market data from industry sources that are believed to be reliable. However, the accuracy, completeness, timeliness, or correct sequencing of the market data cannot be guaranteed either by us or by the market data providers. Neither we nor the market data providers will be liable for interruptions in the availability of market data or your access to market data.

Market data is provided “as is” and on an “as available” basis and is not considered a specific recommendation for you or your Account. There is no warranty of any kind, express or implied, regarding the market data. We are not responsible for, and you agree not to hold us liable for, lost profits, trading losses, or other damages resulting from inaccurate, defective, or unavailable market data. In any case, our liability arising from any legal claim (whether in contract, tort, or otherwise) relating to market data will not exceed the amount you have paid for use of the services or market data. You agree that we may correct any execution reported to you that was based on inaccurate market data provided to us by an exchange or a market center.

25. Non-Publicly Traded Securities and Worthless or Non-Transferable Securities

Holding Non-Publicly Traded Securities at Schwab. We may, at our discretion, agree to accommodate requests from you to hold in your Account certain securities, such as hedge funds, private equity funds, private placements, and other securities that do not trade on securities exchanges or over-the-counter markets (hereinafter referred to as “Non-Publicly Traded Securities”). In consideration for our accepting these Non-Publicly Traded Securities into your Account from time to time, and subject to such additional terms as may be presented to you at the time of the request, you agree that Schwab’s sole obligation with respect to such Non-Publicly Traded Securities will be to (1) obtain and maintain possession or control of such securities in a manner as required by the Securities and Exchange Commission and (2) file and provide reports and information as may be required under the Internal Revenue Code, and regulations thereunder of the Internal Revenue Service.

You acknowledge that Schwab’s obligations are limited to maintaining possession or control and may not include facilitation of transfers, sales, withdrawals, or any other activity related to the Non-Publicly Traded Securities. You further acknowledge that, unless notified in writing by confirmation or similar document, Schwab has not acted and will not act as broker or dealer in any purchase or sale of Non-Publicly Traded Securities held in your Account.

Before requesting that we hold a Non-Publicly Traded Security in your Account, you agree that you will have performed a complete review of the Non-Publicly Traded Security and taken sufficient actions to determine that the investment is appropriate for you and your own financial circumstances and that you are comfortable with the risk of loss, whether due to investment risk or the potential for fraud or misconduct. You agree that such reviews will involve the review of offering memoranda, organizational documents, and audited financial statements, and an investigation into the background and qualifications of the issuers and selling agents of each Non-Publicly Traded Security. By requesting Schwab to hold a Non-Publicly Traded Security, you represent that you have determined that such Non-Publicly Traded Security has been properly registered under federal and state law as a security or is exempt from such registration. You acknowledge that Schwab will be relying on your investigation into these matters in considering your request to hold a Non-Publicly Traded Security in your Account.

You acknowledge that any documentation regarding a Non-Publicly Traded Security submitted to Schwab will be used solely for Schwab’s internal operational purposes. Schwab will not undertake to review or assume responsibility for the terms and conditions or contents set forth in such documentation, including, but not limited to, appropriateness or suitability, restrictions of ownership, rights of transfer, financial statements, or the adequacy of disclosure or compliance with applicable laws, rules, and regulations. Any review performed by Schwab will solely be for its benefit in determining its ability to hold and service the Non-Publicly Traded Security. Any such review should never be considered a recommendation to buy, sell, or hold the security.

You acknowledge that Schwab shall have no responsibility for monitoring the Non-Publicly Traded Security to assure compliance with its terms or disclosures, for taking any actions to collect on any amount owed to you, or for otherwise enforcing your rights with respect to the Non-Publicly Traded Security held in your Account. Schwab is under no obligation to take any action should there be a default, bankruptcy, or other impairment associated with a Non-Publicly Traded Security. You agree to notify Schwab immediately if you identify any problem with any Non-Publicly Traded Security that would interfere with Schwab’s ability to hold the Non-Publicly Traded Security or obtain and report values. You agree that Schwab has no responsibility or duty to investigate, evaluate, or report to you any information that Schwab may possess or may become aware of regarding any Non-Publicly Traded Security.

You also acknowledge that when you direct Schwab to wire or transfer funds to an issuer or sponsor of a Non-Publicly Traded Security, Schwab will not have any responsibility or liability if the issuer or sponsor involved does not provide the required receipt or confirmation of the investment in a manner that would allow Schwab to hold the security in your Account.

Valuing Non-Publicly Traded Securities on Statements. You understand that because there is generally no public or secondary market for Non-Publicly Traded Securities, the values reported on your Schwab statement may not represent market values. It is unlikely that you would be able to sell your interests in the Non-Publicly Traded Securities held in your Account or realize the amounts shown on your Schwab statement upon a sale of the Non-Publicly Traded Securities held in your Account. You acknowledge that it is very likely that the “resale” value of the Non-Publicly Traded Securities may be substantially lower than what is on your Schwab statement. You understand that these values displayed on your Schwab account statements are provided for your convenience only, may have been reported as long as 18 months prior to statement preparation, and should not be relied upon as any indication of market value.

If you have instructed the issuers or sponsors of your Non-Publicly Traded Securities to report values to Schwab, you agree that Schwab may, in its sole discretion, display on your Schwab statement the most recent values provided during the prior 18 months. You agree that Schwab may rely, without question or verification, on the values provided by the issuers or sponsors of Non-Publicly Traded Securities. You represent that during the course of your evaluation of the Non-Publicly Traded Securities, you have determined such valuations will be accurate and reliable. You understand that Schwab does not verify or confirm such valuations and makes no representations that the values are reasonable, are accurate, or reflect your actual holdings.

In the event third-party data sources provide valuation of your Non-Publicly Traded Security to Schwab, Schwab may display the value provided by a third party or a value derived from the third-party data on your statement. If there is a discrepancy between an issuer-provided value and a third-party value, Schwab may report the value of your Non-Publicly Traded Security as “N/A” or “Not Available.” If valuations are not received or made available to Schwab during an 18-month period, Schwab reserves the right to require you to remove the Non-Publicly Traded Security from your Schwab statement in the manner described in this Agreement.

If Schwab reports a value received from an issuer on your Schwab statement, the value may not match what is provided to you by the issuers of the Non-Publicly Traded Security due to the timing of issuer statements and Schwab’s statement production schedule. In these situations, the current valuation will be displayed on your next Schwab statement. If you notice any other discrepancy in valuations between your Schwab statement and any statement provided by the issuer of your investment, please review your statement footnotes to understand how the valuation was obtained and contact Schwab with any further questions.

Schwab may opt at any time, in its sole discretion, to remove a value for a Non-Publicly Traded Security from your statement and report a value of “N/A” or “Not Available.”

Removal of Non-Publicly Traded Securities From Your Account. Schwab may ask you to remove any Non-Publicly Traded Security from your Account at any time and for any reason. In the event that Schwab asks you to remove a Non-Publicly Traded Security from your Account, and you do not request a distribution of the Non-Publicly Traded Security from your Account, remove it from your Account, or transfer it to another custodian within sixty (60) days after Schwab provides you written notice that it will no longer hold the Non-Publicly Traded Security, you authorize and direct Schwab to distribute or transfer the Non-Publicly Traded Security directly to you. If the Non-Publicly Traded Security is represented by a physical certificate in Schwab’s possession, Schwab will return the physical certificate to you. If the Account is a retirement plan brokerage custodial account (including a Company Retirement Account [CRA] or Personal Choice Retirement Account ® [PCRA]) subject to the terms of this Agreement, the Non-Publicly Traded Security may be distributed upon direction of the Trustee or other applicable fiduciary or agent of the plan to the participant in whose Account the Non-Publicly Traded Security is invested, or to the extent not practicable, transferred to the Trustee or other applicable fiduciary or agent to hold the Non-Publicly Traded Security on behalf of the plan. If the Non-Publicly Traded Security is represented by a physical certificate in Schwab’s possession, Schwab will transfer the physical certificate to the participant (if so directed by the Trustee or other applicable fiduciary or agent for the plan) or to the Trustee or other applicable fiduciary or agent of the plan, as applicable. If the Non-Publicly Traded Security is not certificated, you agree that Schwab may remove the security from the Account by notifying the issuer to re-register the position in your name, or in the case of a retirement plan brokerage custodial account, in the name of the Trustee or other applicable plan fiduciary for benefit of the plan and remove Schwab as custodian. You agree to indemnify and hold Schwab harmless for your failure to remove or transfer a Non-Publicly Traded Security after Schwab has notified you that Schwab is no longer willing to hold the security in the Account. You agree that you are also solely responsible for any tax consequences associated with the removal of the Non-Publicly Traded Security from your Account.

SIPC Coverage. The Securities Investor Protection Corporation (SIPC) does not cover many limited partnership interests. Please consult with your attorney or investment advisor with regard to your particular investment.

Worthless and Non-Transferable Securities. Schwab reserves the right to remove from your Account any security that is deemed to have been canceled or otherwise invalidated. In determining that a security has been canceled or invalidated, you agree that we have derived information on such assets from you or from third parties and we are not responsible for the accuracy or reliability of any information regarding these assets. Canceled or invalid securities may include, but are not limited to, bankruptcy or charter or registration revocation. Schwab will notify you if it has removed a canceled or otherwise invalid security from your Account. Unless you provide Schwab with evidence of the validity of the security within sixty (60) days of the notice of removal, you agree to waive any claim to any future distribution from the security and agree to indemnify and hold Schwab harmless from any claims, liability, or damages resulting from the removal of such securities. If you provide Schwab with evidence of the validity of the security from an independent third party within 60 days of receiving the notice of removal, Schwab will reinstate your position.

In addition, Schwab reserves the right to charge an additional servicing fee for securities for which Schwab cannot identify a transfer agent (a “Non-Transferable Security”). The existence of a Non-Transferable Security in your Account may be noted with a notation of “N/A” for the value of that position on your account statements.

26. Order Entry Services

From time to time, we may make available services (referred to in this section as “the services”) that allow you to place orders and obtain market data and other information via telephone, computer, or other electronic means. You agree to use the services to enter your orders if time is of the essence. You agree that, for any orders you send to us in writing, the timing of the order entry is not a priority for you and you understand that, although we will use our best efforts to enter that order in a timely manner, it may not be entered immediately at the time the written order is received. You further agree that we may determine, in our sole discretion, that a written order needs further clarification. You understand that such an order may not be entered if we are unable to contact you to discuss the order. We encourage you to place all orders using the services. You agree you are responsible for paying for all orders. Schwab may, in its sole discretion, remove particular securities, due to volatility or other market factors, from the list of securities that can be purchased using electronic services.

The services may require you to use a number or password to access your Schwab Account. You are responsible for the confidentiality and use of your access number, password, and account number, and for all securities and other transactions initiated through these means. Any orders communicated to us through these means will be considered to have been sent and authorized by you.

You also agree to notify us immediately if you:

• Become aware of any loss, theft, or unauthorized use of your access number, password, or account number; or any unauthorized use of the services or the market data.
• Fail to receive a message that an order you initiated through the services has been received or executed.
• Fail to receive an accurate written confirmation of an order or its execution.
• Receive confirmation of an order that you did not place.

You agree to pay all subscription, service and use fees, if any, that we charge for the services. We may treat such fees as a debit to your Schwab Account and deduct the amount of these fees from any credit balance in your Account. Alternatively, you authorize us, to charge these fees to a credit card account number that you have provided to us for this purpose.

We will not be liable for lost profits, trading losses or other damages resulting from the delay or loss of use of the services. In any case, our liability arising from any legal claim (whether in contract, tort, or otherwise) relating to the services will not exceed the amount you have paid for use of the services. Nothing in this provision, or any other provision within this Account Agreement, restricts or limits in any way your ability to bring any claim in any forum, including in arbitration, that you would otherwise be entitled to bring.

27. Fractional Shares

Schwab may facilitate the trading of a fraction of a share of a security (“Fractional Share”), and subsequently hold Fractional Shares in custody in your account. Fractional Shares present unique risks and have certain limitations. Fractional Shares may have different rights from full share interests of the same security:

• Selling and Transferring Fractional Shares. If you hold a position that has a Fractional Share, you can sell the entire position (all whole shares and any fraction), a number of whole shares, or a number of whole shares plus the entire fractional portion, but you cannot sell an amount that would leave less than one whole share in your account.
• Illiquidity. Schwab does not guarantee that there will be a market for Fractional Shares of a particular security.
• Price Improvement. The Fractional Share component of certain orders may not be eligible for price improvement, which occurs when an order is executed at a price more favorable than the displayed national best bid or offer.
• Transfer or Certification. Fractional Share positions cannot be transferred or certificated. If you want to transfer your account or specific share positions to another broker, your Fractional Shares that cannot be transferred or reorganized will be liquidated at prevailing market prices, and the proceeds will be credited to your Account. Since your Fractional Shares cannot be transferred, your overall SIPC coverage may be affected.
• Dividends. If your Fractional Shares pay a dividend, the dividend payable to your Fractional Share position must be greater than or equal to one half of one cent to be credited to your Account, and it will be paid in proportion to your ownership interest.
• Corporate Actions. Fractional Shares may be eligible to participate in mandatory corporate actions such as stock splits, mergers, or spin-offs. Holders of less than one full share of stock will not, however, be able to exercise voting rights on matters that share-holders of the company issuing the stock are entitled to vote. Only whole shares, and not Fractional Shares, are eligible to participate in voluntary corporate actions, including tender offers and certain rights offerings.

28. Investment Advice

You agree and acknowledge that:

• Unless we otherwise agree with you in writing, Schwab will act only as your broker-dealer and not as an investment advisor (“Investment Advisor”); and your Account will be a brokerage account and not an investment advisory account governed by the Investment Advisers Act of 1940;
• Unless we otherwise agree with you in writing, Schwab will not provide financial planning services to you or your Account, and any collection of your financial data by Schwab, or analysis or evaluation of such data by Schwab, will be in furtherance of our broker-dealer activities such as recommending investments for your Account, and not in connection with establishing or implementing a financial plan;
• You, or you and an Investment Advisor other than Schwab, if you have one, are responsible for determining the nature, potential value of any particular investment strategy, transaction (including futures transactions) or security (including equities and options). Schwab has no responsibility for any such determination (1) unless we otherwise agree with you in writing, (2) unless required by applicable law, or (3) unless Schwab or a Schwab representative gives advice directly to you that is clearly identified as a Schwab recommendation for you to enter into a particular transaction or transactions or to buy or sell a particular security or securities;
• You agree that any such Schwab recommendation will remain in effect only for as long as we tell you that it will remain in effect at the time we make the recommendation;
• Unless we otherwise agree with you in writing, Schwab does not monitor your account(s) or investments and has no obligation to update any investment recommendation, financial advice, or financial plan we may give you. Such recommendation, financial advice, or financial plan only applies at the point in time we provide it to you;
• Unless we otherwise agree with you in writing, Schwab does not have any discretionary authority or obligation to review or make recommendations for the investment of securities or cash in your Account;
• You, or you and an Investment Advisor other than Schwab, if you have one, will rely on multiple sources of information in making investment decisions for your Account, and any information Schwab may provide will not serve as the sole basis for any investment decision you make or is made on your behalf;
• You, or you and an Investment Advisor other than Schwab, if you have one, have an affirmative duty to monitor profits and losses in your Account and to modify your trading decisions accordingly;
• Schwab may make available, to you and your Account, enrollment in certain Schwab offerings which will be composed of specified investment advisory services for which you pay a quarterly asset-based fee, which will generally be charged based on the amount of certain assets in your Account, or, in the case of financial planning services, a one-time flat fee. Other fees and charges can also apply, as set forth in a separate agreement you will enter into and that will become part of this Account Agreement;
• While Schwab may make available its own proprietary research, or other information, this does not constitute an individualized recommendation that a security or transaction is appropriate for you or your Account. Additionally, while Schwab makes available research, analysis, news and other information prepared by third parties, this also does not constitute an individualized recommendation by Schwab (or any third party) or a solicitation of any offer to buy or sell securities by Schwab (or any third party). Schwab does not create or prepare any of this third-party information, and it gives no assurances as to its accuracy, quality or timeliness and does not warrant any results from use of any such information;
• Any research, analysis, news or other information made available through electronic channels (e.g., the Schwab.com website or email alerts) does not constitute an individualized recommendation to you to buy or sell a particular security;
• Schwab does not give legal advice; and
• Schwab does not give tax or estate planning advice, but we may provide you with general tax and estate planning information and principles. You agree that these principles do not apply to your specific circumstances or take into account your comprehensive tax or estate planning situation. For that type of assistance, you agree to consult your own tax or legal advisor.

You agree not to hold Schwab liable for any trading losses, lost profits or other damages resulting from your use of any information Schwab may provide, whether it is prepared by Schwab or a third party.

29. Market and Limit Orders

You acknowledge a quote you obtain at or prior to the time you place a market order is not a guarantee that all or part of your order will be executed at the quoted price. You acknowledge that when you place a market order, the price of the security may change between the time the order is placed and the time it is executed, and agree not to hold Schwab liable for these price fluctuations. In addition, if you place a market order when the trading exchanges or marketplaces are closed, or for a security that has not traded on the public market before, you acknowledge that the security may open for trading at a price substantially higher or lower than the previous closing price or the anticipated price. You agree to pay or receive the prevailing market price at the time your market was executed, even if the execution market is significantly higher or lower than you anticipated at the time you placed the order.

The price quotes you receive when placing an order apply only to orders for a small number of shares. You acknowledge that the price you will pay or receive may vary substantially if your order is larger than the number of shares to which a price quote applies. Large market orders may be executed in multiple lots at different prices. If you enter a large marketable order at or near the market close or at or near a trading halt, you acknowledge that Schwab may not be able to fill all or part of that order prior to the market close and you agree that Schwab is not responsible for any alleged market losses associated with that order.

You should understand that you can limit the risk of price fluctuations by placing a limit order. However, if you place a limit order, you are less likely to get an execution. Schwab can provide no assurance that your limit order will be executed at any particular time, or at all. If you do not understand the purpose or effect of either market or limit orders, you agree to call a Schwab representative to assist you.

30. No Recommendation of Day Trading

Schwab does not promote directly or indirectly what is commonly referred to as “Day Trading.” Schwab’s services that provide the means to place trades electronically should not be construed as an endorsement or promotion of Day Trading. Day Trading can be very risky and is not appropriate for customers with limited resources, limited investment or trading experience, or a low risk tolerance.

31. Good-till-Canceled Order

Good-till-canceled (GTC) orders will be automatically canceled at the close of the session on the date you confirmed at the time of order entry or the last day the market is open if the date you confirmed is a weekend or holiday. You acknowledge that if you do not cancel an open GTC order, the transaction may be completed based on your original instructions. For securities that pay cash dividends or that split, unless otherwise instructed, open GTC orders will be adjusted in accordance with stock exchange regulations.

32. Privacy Policy, Extended Hours Trading, and Other Terms and Disclosures

Schwab from time to time will inform you of terms and conditions for accessing or using products or services Schwab offers, including, but not limited to, accessing our website and participation in an after-hours trading session. Such terms and conditions, when accepted by you as indicated either by your actions or express acknowledgment, become part of your Account Agreement with Schwab, and you agree to abide by the requirements of those terms and conditions.

Schwab also will inform you from time to time of important disclosures and notices pertaining to your access or use of Schwab products or services, including, but not limited to, our privacy policy and the risks of buying or selling certain securities or trading in an after-hours session. You agree that your use of such products or services is an acknowledgment that you have understood the disclosure, notice or policy, and that you agree to any action taken by Schwab in accordance with the stated disclosure, notice or policy.

Extended Hours Trading Session

Schwab’s extended hours trading offering has two components: a premarket session that operates from 7:00 a.m. to 9:25 a.m. ET, and an after-hours session that operates from 4:05 p.m. to 8:00 p.m. ET. These sessions are completely independent from the regular market session.

Orders for the pre-market session may be entered beginning at 8:05 p.m. ET on the prior trading day, but will not be eligible for execution until the session officially opens at 7:00 a.m. ET on the following trading day. Orders for the after-hours trading session can be entered and will be eligible for execution beginning at 4:05 p.m. ET.

Other financial service providers may offer trading services outside of regular market hours that differ significantly from Schwab’s extended hours trading sessions.

Order Types

Schwab only accepts limit orders in extended hours trading sessions. Market orders will not be accepted.

Order Prices

Schwab does not accept limit orders in sub-penny prices. A sub-penny price is any price entered more than two digits to the right of the decimal (i.e., 0.123, 1.123, 10.1234, etc.).

Maximum Share Sizes

The maximum share size is 25,000 shares in extended hours trading sessions.

Extended Hours Trading Session Disclosure

• Risk of Lower Liquidity. Liquidity refers to the ability of market participants to buy and sell securities. Generally, the more orders that are available in a market, the greater the liquidity in that market. Liquidity is important because with greater liquidity it is easier for investors to buy or sell securities and, as a result, investors are more likely to pay or receive a competitive price for securities purchased or sold. There may be lower liquidity in extended hours trading as compared to regular trading hours. As a result, your order may only be partially executed, or not at all.
• Risk of Higher Volatility. Volatility refers to the changes in price that securities undergo when trading. Generally, the higher the volatility of a security, the greater its price swings. There may be greater volatility in extended hours trading than in regular trading hours. As a result, your order may only be partially executed, or not at all, or you may receive an inferior price when engaging in extended hours trading than you would during regular trading hours.
• Risk of Changing Prices. The prices of securities traded in extended hours trading may not reflect the prices either at the end of regular trading hours, or upon the opening the next morning. As a result, you may receive an inferior price when engaging in extended hours trading than you would during regular trading hours.
• Risk of Unlinked Markets. Depending on the extended hours trading system or the time of day, the prices displayed on a particular extended hours trading system may not reflect the prices in other concurrently operating extended hours trading systems dealing in the same securities. Accordingly, you may receive an inferior price in one extended hours trading system than you would in another extended hours trading system.
• Risk of News Announcements. Normally, issuers make news announcements that may affect the price of their securities after regular trading hours. Similarly, important financial information is frequently announced outside of regular trading hours. In extended hours trading, these announcements may occur during trading and, if combined with lower liquidity and higher volatility, may cause an exaggerated and unsustainable effect on the price of a security.
• Risk of Wider Spreads. The spread refers to the difference in price between what you can buy a security for and what you can sell it for. Lower liquidity and higher volatility in extended hours trading may result in wider than normal spreads for a particular security.

Appropriateness of Extended Hours Trading: Schwab does not warrant or recommend that extended hours trading is appropriate for you. As noted above, extended hours trading involves special risks, and it may not be appropriate for all investors. Investment decisions you make involving extended hours trading are your responsibility.

Potential Changes to Extended Hours Trading: Schwab reserves the right to change its extended hours trading session. You will need to keep up to date on these changes and review how they might affect your own investment decisions.

Clearly Erroneous Policy: Schwab may be subject to the Electronic Market’s “clearly erroneous policies.” A clearly erroneous trade occurs when someone has entered an order with an obvious error in any term, such as security identification, price, or number of shares. Upon request, the Electronic Market may review a transaction to determine if it was clearly erroneous and may reverse or “break” such a trade. This could have the effect of placing you in the position you were in before the transaction. If you wish to have a transaction reviewed, please contact a Schwab representative immediately, as you must make an appeal within 30 minutes of the execution time for a “break” to be considered.

Electronic Services Agreement and Use Agreement: Your use of the extended hours trading session is governed by your existing account agreements with Schwab, including the “Electronic Services Agreement.” The information, news, research, quotations, and other content available to you during the extended hours trading session is also subject to the “Use Agreement.” As a Schwab customer, you have previously consented to these agreements, which are available for your review under the Agreements link that appears on one or more pages in the Customer Center.

33. Order Routing and Execution

In arranging for the execution of non-directed orders for equities and listed options, Schwab seeks out industry-leading execution services and access to the best-performing markets. Schwab routes orders for execution to unaffiliated broker-dealers, who may act as market maker or manage execution of the orders in other market venues, and also routes orders directly to major exchanges. Schwab considers a number of factors in evaluating execution quality among markets and firms, including execution price and opportunities for price improvement, market depth and order size, the trading characteristics of the security, speed and accuracy of executions, the availability of efficient and reliable order-handling systems, liquidity and automatic execution guarantees, the likelihood of execution when limit orders become marketable, and service levels and the cost of executing orders at a particular market or firm. Price improvement occurs when an order is executed at a price more favorable than the displayed national best bid or offer. Schwab regularly monitors the execution quality obtained to ensure orders are routed to market venues that have provided high-quality executions over time. Schwab receives remuneration, such as liquidity or order flow rebates, from market venues to which orders are routed, and also pays fees for execution of certain orders. Quarterly information regarding the market venues to which we route orders and remuneration received is available on our website at Schwab.com or in written form upon request. Information regarding the specific routing destination and execution time of your orders for up to a six-month period is also available upon request. Schwab may execute fixed income orders for customers as agent or as principal for our own account. In the bond market, there is no centralized exchange or quotation service for most fixed income products. Prices generally reflect activity by market participants or dealers linked to various trading systems. A small number of corporate bonds are listed on national exchanges. Although Schwab seeks access to major trading systems, exchanges, and dealer markets in an effort to obtain competitive pricing, at any given time it is possible that securities could be available through other trading systems, exchanges, or dealers at superior or inferior prices compared to those available at Schwab. All prices are subject to change without prior notice.

34. Order Change or Cancellation Requests

You acknowledge that it may not be possible to cancel a market or limit order once you have placed it, and you agree to exercise caution before placing all orders. Any attempt you make to cancel an order is simply a “request to cancel.” Schwab processes your request to change or cancel an order on a best-efforts basis only and will not be liable to you if Schwab is unable to change or cancel your order. Market orders, in particular, are subject to immediate execution, and as a general rule cannot be canceled once trading begins. No change or cancellation of market orders will be accepted through the Electronic Services. Moreover, Schwab cannot guarantee that cancellation requests for any pending orders, placed shortly before trading begins, will be honored. You under-stand that Schwab’s ability to process cancellation requests will be impacted by market conditions and trading volumes, both of which are out of Schwab’s control. If you wish to try to change or cancel your market order, you agree to call a Schwab representative to assist you. Attempting to replace or change a market order through the Electronic Services can result in the execution of duplicate orders, which ultimately are your responsibility. If an order cannot be canceled or changed, you agree that you are bound by the results of the original order you placed.

35. Acknowledgment of Obligations and Risks of Investing in Global Securities Traded on Foreign Exchanges

Tax reporting and other potential tax-related consequences.

Investing in foreign securities, including those traded on domestic exchanges, may result in tax liability or tax reporting obligations to U.S. and/or foreign taxing authorities. You alone are responsible for the taxes resulting from your trades, including any tax liability arising as a result of foreign legal obligations. Schwab’s ability to aid you in achieving the most favorable tax treatment will vary by jurisdiction. Schwab does not provide tax advice. Please consult with a tax advisor prior to investing in foreign securities in your Schwab brokerage account(s).

Potential Trading and Ownership Restrictions Applicable to Global Securities

Foreign stock exchanges and regulatory authorities require that you report, and in some cases seek pre-approval for, acquiring ownership in foreign listed securities above certain thresholds or in certain industries. Investments in foreign securities may be subject to trading restrictions and fees not usually encountered in the United States. Governments, foreign stock exchanges, markets and/or individual securities may impose specific restrictions that prohibit or limit trading by individuals or entities. It is solely your responsibility to ensure that you will, at all times, comply with all applicable laws, obligations and restrictions in each of the jurisdictions in which you purchase and sell securities.

36. Mutual Fund Fees, Orders, Distributions and Redemptions

You agree that, in purchasing and redeeming shares of a mutual fund through Schwab, Schwab’s policies and procedures will govern such transactions and not those of the mutual fund as described in its prospectus, which may be either more or less beneficial to you as an investor. In particular, you agree that Schwab’s policies and procedures on minimum investment requirements, exchange of fund shares, dividend accrual and date for payment of accrued dividends upon redemption of a daily dividend fund may vary from those applicable to direct fund shareholders. You can also be charged a fund’s redemption fee that would not be imposed by the fund on direct shareholders holding fund shares under the same circumstances.

Schwab imposes short-term redemption fees on certain mutual fund transactions and reserves the right to restrict individuals who engage in short-term trading of mutual funds from purchasing some or all funds available through Schwab. Our short-term redemption policy, including applicable fees and other restrictions, is available at www.schwab.com and upon request. Schwab can also charge a transaction fee for certain mutual fund transactions; you would not incur this fee if you purchased shares directly from a fund company. Your purchase and sale of mutual fund shares can be subject to additional fees the fund imposes, such as sales loads and contingent redemption fees, that are separate from, and in addition to, the transaction and other fees charged to you by Schwab. You agree to pay, and are solely responsible for payment of, all fees charged to you by Schwab and/or any fund.

Schwab’s deadline for receiving customer orders to place with a mutual fund for execution at the price next calculated by the fund may be earlier than the deadline set by the fund in its prospectus. It is your responsibility to verify with us the deadline by which you must place your order with Schwab to obtain the next price calculated. We generally will attempt to have orders received by us prior to our deadline accepted by the fund for execution at the price next calculated by the fund. However, you may receive a later price than the price next calculated by the fund if, due to operational incompatibilities with the fund or other limitations, Schwab is unable to support transmission of the order to the fund prior to the next price calculated by the fund. It is your responsibility to verify with us whether your order will receive the price next calculated by the fund prior to placing your order with Schwab.

In addition, a mutual fund may decline to execute an order for the price next calculated by it if we do not place the order with the fund by a specified time. You agree that we will not be liable to you for any losses, including lost profits, if the mutual fund does not accept your order for execution at the price next calculated by the fund after our dead-line for any reason, including, but not limited to, computer system delays or failures, natural catastrophes or other emergencies, or human error resulting in our late placement of the order with the fund. If a mutual fund declines to accept your order for execution at the price next calculated after our deadline because we did not place the order with the fund by a specified time, Schwab reserves the right, but is not obligated, to place your rejected order with the fund for execution at the price next calculated by the fund after its acceptance of the order.

A fund may also decline a purchase order, in its sole discretion, if the purchase order exceeds a certain size or for any other reason, and Schwab will not be liable for any losses, lost profits, or other damages that allegedly result from the fund’s rejection of that purchase order. If a fund declines your purchase order for any reason other than the time we placed the order with the fund, we will cancel the order and, if practicable, attempt to notify you; we will not make another attempt to place such a declined purchase order with the fund.

If you place an order to buy or sell a specific dollar amount of a mutual fund, Schwab will calculate the number of shares bought or sold by dividing the dollar amount of the order by the price and rounding to the nearest three decimal places. Due to rounding, the actual value of the shares bought or sold may be slightly greater or less than the actual dollar amount of your order. If you place an order to buy or sell a specific number of shares of a fund, Schwab will calculate the dollar amount of the purchase or sale by multiplying the number of shares by the price and rounding to the nearest two decimal places. Due to rounding, the actual dollar amount may be greater or less than the actual share amount of your order.

Schwab does not have any obligation to advance redemption proceeds and distributions related to mutual fund shares to your Account before we have received them from the mutual fund.

In the event we do advance such proceeds or distributions, such amounts will constitute indebtedness owed to us by you, secured as described in the section entitled “Security for Indebtedness” until they are received from the fund. We reserve the right to reverse the transaction pending receipt of payment from the fund. Schwab is not obligated to pay any interest on distributions from mutual funds or other issuers (including, but not limited to, issuers of equity securities) until such distributions are received by Schwab.

If a mutual fund exercises its right to redeem your shares “in kind” by delivering to Schwab portfolio securities in payment for your shares instead of cash, Schwab will hold these securities in your Account, subject to your instructions. If, however, Schwab does not normally custody or effect transactions in a security paid to you by your mutual fund, Schwab will take such action as it deems appropriate to effect delivery of such nonstandard security to you or to an entity able to assume custody or effect transactions in the security. You agree to pay our commissions and transaction, processing, custody and other fees, and/or those of the entity to which your nonstandard security is delivered, as they exist from time to time and apply to the transactions and services you receive in connection with these securities paid to you by the fund.

37. Notification

We will direct written communications to the mailing address you provided on your Account Application, or as you otherwise specify. If you have opted into electronic delivery for certain Account-related materials, we will direct those communications to the email address you provided. We will presume that you are able to access the email address you provided. By providing us with your telephone number(s), you consent to receiving text messages and phone calls on those telephone number(s) made using an automatic telephone dialing system and/or an artificial or prerecorded voice from us relating to your Account. Any communication we direct to a physical address, email address, facsimile, telephone number, or otherwise is considered delivered to you personally, whether or not you actually receive it.

38. Consent to Electronic Delivery of Records and Regulatory Information

As a condition of your eligibility to receive certain Schwab products, services or offers, or as a condition for you to set up access to your Account through the web or another Electronic Service, upon notice to you, Schwab may require that you accept delivery of trade confirmations, account statements, prospectuses, issuer information, or other documents by electronic means such as electronic mail or through one of our websites. You agree that, after such notice, your enrollment in or acceptance of such products, services or offers, or your new access to the web or Electronic Services, constitutes your consent to electronic delivery of trade confirmations, account statements, prospectuses, issuer information or other documents.

39. Trade Reports, Confirmations, Statements and Other Account-Related Communications

Schwab will provide you with written confirmation of trades that are executed in your Account as required under SEC Rule 10(b)-10. You agree that Schwab is not legally obligated to provide you with any trade status report other than the written confirmation required by SEC rules and that any other trade status report is provided as a courtesy only. Schwab will not be liable for any losses, lost profits, or other damages that allegedly result from delays in or a failure to issue a trade status report. On account statements and trade confirmations, Schwab calculates the quantity, unit price, and market price out to four decimal places if necessary. For settlement purposes, Schwab will round either up or down to the nearest penny any amounts owed to or from Schwab.

You acknowledge that you have an affirmative duty to promptly review any and all trade confirmations and account statements for accuracy and completeness and to immediately notify us of any items you believe to be in error. You agree to waive any objections to the trades, positions, fund transfers, checks, disbursements, fees, and other information set forth on any confirmations and account statements unless you notify us of an unauthorized transaction or other error in writing within 10 days of mailing. You agree that we are not liable for any damages or market fluctuations resulting from an error you fail to timely report to us or your delay in reporting an error to us.

You agree that Schwab may combine communications such as account statements, confirmations and other written communications related to account activity for your accounts in a manner that reduces the number of envelopes mailed to you. Combined communications for accounts that have more than one account holder may be addressed solely to the first-listed account holder or to the account holder who has his or her tax identification number serve as the tax-reporting identification number on the account (usually the first-listed account holder).

You agree to notify Schwab if you want any or all of your communications to be mailed separately. If you wish to combine communications for additional eligible accounts that are not automatically combined, please contact Schwab. If you have an account for which you are acting in a fiduciary capacity, it is your responsibility to consider whether it is appropriate for envelopes to be mailed to you that might contain material relating to both your personal and fiduciary capacities. You are responsible for reviewing all of your account statements, any amendments to your account agreement(s), any regulatory notices and any other information that is sent by Schwab.

40. Cost Basis Tax Reporting

Schwab is required to report adjusted cost basis, including short term and long term gain and loss details, to you and to the IRS for securities transactions in your taxable brokerage account(s). When your account is first opened, Schwab will default the cost basis accounting method for open-end mutual funds to the Average Cost Method with the First In, First out (FIFO) Lot Selection Method, and for all other assets (i.e., equities, fixed income, options, etc.) to the Identified Cost Method with the FIFO Lot Selection Method.

It is your responsibility to choose (or change) the appropriate cost basis accounting method for your tax situation. If you fail to choose (or change) your desired cost basis accounting method prior to trade settlement, you may have adverse tax implications. Schwab does not provide tax advice and encourages you to consult a tax professional regarding cost basis decisions. More detailed information on cost basis is available in the Cost Basis Disclosure Statement, located on Schwab.com .

41. Schwab MoneyLink ® Transaction Errors

If you think your statement is wrong or if you need more information about a transfer listed on the statement, call or write to us as soon as you can:

Call: 1-800-421-4488

Charles Schwab & Co., Inc. Attn: Document Control P.O. Box 982600 El Paso, TX 79998

Charles Schwab & Co., Inc. Attn: Document Control P.O. Box 628291 Orlando, FL 32862-8291

Outside the U.S., call: +1-415-667-8400

For Schwab MoneyLink ® Electronic Fund Transfers, we must hear from you no later than 60 calendar days after the date we sent the first statement on which the problem or error appeared. If you tell us orally, we may require you to send us your complaint or question in writing within 10 Business Days. We’ll need the following information:

• Your name and account number,
• A description of the error or transaction you’re unsure about,
• A clear explanation of why you believe it’s an error or why you need more information, and
• The dollar amount of the transaction or suspected error.

We will tell you the results of our investigation within 10 Business Days after we hear from you and will correct any error promptly. If we need more time, however, we may take up to 45 days to investigate your complaint or question.

If you are a new customer and the error or question concerns a Schwab MoneyLink ® Electronic Fund Transfer that occurred within 30 days after the first deposit to your Schwab Account was made, we will tell you the results of our investigation within 20 Business Days after we hear from you. If we need more time, we may take up to 90 days to investigate.

In addition, we may take up to 90 days to investigate if the error or question relates to a Schwab MoneyLink ® Electronic Fund Transfer that was initiated outside of the United States or resulted from a point-of-sale debit card transaction.

If we decide we need the additional time to investigate your complaint or question, we will provisionally credit your Account within 10 Business Days (or 20 Business Days for errors or questions relating to transactions that occurred within 30 days after the first deposit to the Schwab Account was made) for the amount you think is in error, so that you will have the use of the money during the time it takes us to complete our investigation. If we ask you to put your complaint or question in writing and we do not receive it within 10 Business Days (or 20 Business Days if applicable), we may not credit your Account.

We will tell you the results within three Business Days after completing our investigation. If we decide that there was no error, we will send you a written explanation. You may ask for copies of the documents that we used in our investigation.

42. Wire Transfers and Automated Clearing House (ACH) Transfers

Sending wire transfers.

The following provisions apply to wire transfers you send through Schwab. This section does not apply to ACH funds transfer services or Schwab MoneyLink ® services, which are subject to separate terms and conditions.

A wire transfer is the process of carrying out a payment order that leads to the transfer of funds to a beneficiary. The payment order is the instruction you give us regarding a wire transfer. The beneficiary is the person who receives the payment. The beneficiary may be you or another person.

We can charge fees for sending a wire transfer. For current fees, call 1-800-435-4000. If your account is managed by an advisor, please contact your advisor directly, or call Schwab Alliance at 1-800-515-2157. Additional fees can be applied to a transfer by the receiving bank or an intermediary bank. We have no control over the intermediary or receiving bank’s fee structure.

By providing us with a payment order in a manner that is acceptable to us, you authorize us to act on your behalf to initiate a wire transfer. Upon receiving a payment order from you by the applicable cutoff time, we will act on the payment order by transmitting payment instructions to the applicable bank. We have cutoff times for processing payment orders. We may treat payment orders we receive after a cutoff time as if received the next Business Day. Our cutoff times are available upon request.

We may provide you with one or more numbers, passwords, tokens, challenge questions, and/or other means of identification and authentication (collectively, a “Password”) in connection with our wire transfer service. You agree to maintain the security and confidentiality of your Password and to notify us immediately if you have any reason to believe its security or confidentiality has been or may be breached.

We may elect to verify the authenticity and content of any payment order by placing a call to any authorized signer on your account and/or any other person you designate as your agent for that purpose. If we are unable to verify a payment order with an authorized person, we may refuse to execute the order. We also may reject any instruction that is not confirmed in accordance with any other security procedure that you and we agree upon. You agree that confirmation of your wire instruction by telephone, or online through our website or by wireless device (which consists of both electronically authenticating and authorizing the wire instruction through encrypted channels), or our reliance on any password or other security procedure that you and we agree upon, shall be deemed to be a commercially reasonable security procedure, in light of the anticipated size, type, and frequency of your wire transfers.

We may process any payment order we believe is transmitted or authorized by you if we act in compliance with the agreed upon security procedure. You agree to be bound by any wire instruction, whether or not authorized, that is issued in your name and accepted by us in compliance with the security procedure.

Our security procedures are designed to verify the authenticity of wire instructions, not to detect any errors in their transmission or content. We assume no responsibility to detect errors in your instructions (e.g., duplicate transfers), even if we may take certain actions from time to time to do so.

We may reject payment orders. Any notice of rejection (whether given orally, electronically, or in writing) will be effective when given. We will not be liable to you for the rejection or obligated to pay you interest for the period before you receive the notice of rejection. Pursuant to government regulations, we may be unable to send a wire transfer you requested to certain individuals or countries, or to individuals who are citizens of those countries. Also, your payment order may be delayed while we check to ensure that sending it to the designated recipient does not violate applicable laws or regulations. You agree that Schwab will not be liable for any losses in any of these circumstances.

We may select any intermediary bank, funds transfer system, or means of transmittal to send your payment orders. Our selection may differ from that indicated in your instructions.

It is important that you provide us with accurate and complete payment information. The beneficiary’s bank (including us when we are the beneficiary’s bank) may make payment to the beneficiary based solely on the account or other identifying number you provide, even if the name on the payment order differs from the name on the account. We, or an intermediary bank, may send a payment order to an intermediary bank or a beneficiary’s bank based solely on the bank identifying number, even if you provide us with a different bank name.

Neither we nor any other bank has a duty to determine whether a payment order contains an inconsistent name and number. This means that you may not rely on the name of the person or bank that you provide us to ensure payment to the correct person. If you provide incorrect information, you could lose the amount transferred.

Terms Applicable to Sending Domestic Wire Transfers and Non-Consumer Foreign Wire Transfers

You agree to indemnify us against, hold us harmless from, and defend us against any losses, claims, costs, expenses, damages, or liabilities (including, but not limited to, attorneys’ fees) arising out of or resulting from any action taken or omitted by us in accordance with this Agreement or your instructions. This obligation will survive the termination of this Agreement.

You must notify us at once if you think a wire transfer shown on your Account statement or other notice is incorrect or unauthorized. If you fail to notify us in writing within 10 calendar days after we send or make available to you the first notice or statement on which the problem or error appears, you agree that the transfer information set forth on the statement or notice will be deemed correct, and that you will be precluded, to the greatest extent permitted by law, from asserting any claim against Schwab in connection with, and waive any right to recover any losses resulting from, any unauthorized or erroneous transfer.

You cannot amend or cancel a payment order after we receive it. If you ask us to do this, we may make a reasonable effort to act on your request. But we will not be liable to you if, for any reason, a payment order is not amended or canceled. You agree to reimburse us for any costs, losses, indemnity claims, or damages that we incur in connection with your request to amend or cancel a payment order.

If your payment order requires us to convert one type of currency to another (for example, from U.S. dollars to euros), your funds will be exchanged for such other currency at the current rate of exchange according to our standard procedures. Currency exchange rates fluctuate over time, and you acknowledge and accept the risks of such fluctuations between the time you send us a payment order and the time the wire transfer is final.

Terms Applicable to Certain Consumer Foreign Wire Transfers

If you initiate a wire transfer that is subject to Regulation E primarily for personal, family, or household purposes to a recipient in a foreign country (a “consumer foreign wire transfer”), we will provide you with a disclosure of the details of the transaction, as well as information about your error resolution and cancellation rights. Note: Certain transfers made in connection with the purchase or sale of securities are not covered by Regulation E or this section.

What to do if you think there has been an error or problem with your consumer foreign wire transfer:

If you think there has been an error or problem with your wire transfer:

Call: 1-877-742-9488

Outside the U.S., call: +1-602-355-3426

You must contact us within 180 days of the date we promised to you that funds would be made available to the recipient. When you do, please tell us:

• Your name and Account number,
• The error or problem with the transfer and why you believe it is an error or problem;
• The name of the person receiving the funds and, if you know it, his or her telephone number or address;
• The dollar amount of the transfer; and
• The confirmation code or number of the transaction.

We will determine whether an error occurred within 90 days after you contact us, and we will correct any error promptly. We will tell you the results within three Business Days after completing our investigation. If we decide that there was no error, we will send you a written explanation. You may ask for copies of any documents we used in our investigation.

What to do if you want to cancel a consumer foreign wire transfer:

You have the right to cancel a consumer foreign wire transfer and obtain a refund of all funds paid to us, including any fees. In order to cancel, you must contact us at the phone number above within 30 minutes of payment for the transfer.

When you contact us, you must provide us with information to help us identify the transfer you wish to cancel, including the amount and location where the funds were sent. We will refund your money within three Business Days of your request to cancel a transfer as long as the funds have not already been picked up or deposited into a recipient’s account.

Receiving Transfers

We may receive instructions to pay funds to your account, including wire transfers, transfers sent through an ACH system, and transfers that are processed directly to an account with us. We may receive funds transfers directly from the sender, through a funds transfer system such as an ACH system, or through some other communications system.

We will notify you that we have received wire transfers and ACH transfers by listing them on your Account statement rather than sending you separate notices with respect to each transfer. You can also access information about your transfers with our online service through Schwab.com .

ACH Provisional Payment Rule

Under ACH rules, funds transfers sent through an ACH system are provisional and may be revoked prior to final settlement. You agree that ACH transfers that involve your Account will be subject to the ACH rules.

If an ACH transfer is revoked before final settlement and we do not receive final settlement, we can charge your Account for any amount that was previously credited and the person who sent the payment order will be considered not to have paid you. If this happens, we will not send you a separate notice; we will notify you of these credits and charges on your Account statement.

If we are obligated to pay you for loss of interest that results from our error or delay regarding a payment order that you place, we will calculate your compensation by using the rate that is applicable to your Account for the time in question.

In no event will we be liable for any special, indirect, or consequential damages (even if we have been informed of the possibility of such damages), including, without limitation, loss of profits or revenue, except as may be required by applicable law.

Compliance With Rules and Laws

You agree to comply with applicable payment system rules, including the Operating Rules of the National Automated Clearing House Association (NACHA), the laws and regulations of the United States, and any other applicable law.

43. Receipt of Deposits and Transfers

If we receive a deposit or transfer to your Account on a day that is not a Business Day, we may not credit your Account until the next Business Day. For purposes of this section, “Business Day” means Monday through Friday, except for U.S. stock exchange holidays and bank holidays. Schwab assigns a hold on incoming foreign wires, preventing them from being moved to another account of investment for two days, and does not pay interest on the funds during the hold period. (See "Float Disclosure" for more information.)

You will verify that deposits have been correctly posted to your Account and notify Schwab immediately of any discrepancy.

You authorize Schwab to accept checks (with or without endorsement) for deposit into your Account that we receive from your advisor. Your advisor may forward the physical check to us or transmit images of the check and other data to us electronically. You acknowledge your responsibility for any check given to your advisor for deposit into your Account. You further acknowledge and agree as follows: We may prescribe limitations or refuse to accept checks for deposit when forwarded to us by your advisor. Schwab has no responsibility for your advisor’s handling of checks, including but not limited to (i) the security or safekeeping of checks, (ii) your advisor’s creation of electronic images of checks, (iii) the forwarding or transmission of checks or check images to us, and (iv) any ambiguity, inaccuracy or omission in any check-related information provided to us. We may process check images electronically or convert them into paper substitute checks based on the information your advisor provides. Your advisor’s forwarding of checks (or check images) to Schwab are instructions of your advisor with respect to which you have agreed to indemnify and hold us harmless as provided in the Application Agreement for your Account.

44. Unrelated Business Taxable Income (UBTI) Provisions

If any assets held in your account generate unrelated business taxable income (UBTI), you have the sole responsibility for reporting such income to the Internal Revenue Service (IRS) and any other tax authorities and for complying with any other tax filing requirements resulting from receipt of such unrelated business taxable income. You agree that Schwab has no responsibility for such tax reporting and filing, and agree to indemnify and hold us harmless from any consequences, including penalties assessed by the IRS and any other tax authorities, resulting from receipt of such unrelated business taxable income. You also agree that if your account holds assets that generate unrelated business income, your account at all times will contain liquid funds to pay any tax imposed on unrelated business income at the time such tax obligation becomes due, and that, if necessary to satisfy any such tax obligation, you will liquidate assets or contribute sufficient amounts to the account.

You further agree that to the extent funds are not available, Schwab is authorized to liquidate any investments in your account necessary to generate the funds needed to satisfy your tax obligation. You understand and acknowledge that, in cases where the annual federal tax due is more than $500, the IRS requires that quarterly estimated tax payments be made. You understand and acknowledge that Schwab will make such quarterly payments on behalf of your account only if you direct us in writing to make these payments, and if you notify us of the amount you wish us to pay each quarter.

45. Monitoring of Conversations

You, and any agent or representative acting on your behalf, agree that we may, but are not obligated to, record telephone calls or listen to conversations you have with any Schwab representative to monitor the quality of the customer service you receive and to verify securities transaction information to banks, mutual funds and other entities regarding the products or services we offer or arrange on behalf of customers, or for other business reasons. You acknowledge that we may not be able to locate a tape recording unless you can provide the date and time of the conversation and the full name of the representative to whom you spoke. You also agree that Schwab has the sole right to determine how long we will retain tape recordings.

46. Trading or Disbursement Restrictions

You agree that we may place trading, disbursement, or other restrictions on your Account as Schwab deems necessary in Schwab’s sole discretion, including, but not limited to, the following circumstances: (i) pursuant to a court order, levy, garnishment, or other legal process; (ii) at the request of a government agency, regulatory body, or law enforcement authority; (iii) in the event of a dispute regarding the assets in your Account, including a dispute between the registered or beneficial owners of the Account; (iv) in the event of a dispute between or among joint or multiple Account holders including, but not limited to, joint or multiple tenants, trustees, or authorized agents; (v) in the event of a dispute between or among beneficiaries, or a dispute regarding the proper beneficiary(ies) of your Account; (vi) pursuant to escheatment laws, rules, or regulations; or (vii) as a result of trading or trade-related violations, which may limit your ability to place trades in your Account, such as a cash-up-front restriction. You agree to abide by any such restriction and not to initiate trades or transactions which would violate the restriction. You agree we may sell securities in your Account to comply with any court order, garnishment, levy, or other legal obligation imposed by a court, government agency, regulatory body, or law enforcement authority. You agree to indemnify and hold Schwab harmless from any claims, losses, damages, or expenses (including reasonable attorneys’ fees) caused by or related to any restriction placed on your Account or any transaction placed by you which violates such restriction. You agree to provide any documentation or information requested by Schwab to have a restriction removed from your Account. You agree we can charge your Account a processing fee for processing any court order, garnishment, levy, subpoena, or other legal process Schwab receives in connection with your Account.

47. Multiple-Party Account Disputes, Beneficiary Disputes, and Other Account Disputes

In the event of a dispute or disagreement (i) between or among multiple Account holders including, but not limited to, joint or multiple tenants, trustees, or authorized agents, (ii) between or among beneficiaries, or a dispute regarding the proper beneficiary(ies) of your Account, or (iii) regarding the assets in your Account, including a dispute between the registered or beneficial owners of the Account: You agree that we may, but are not obligated to, place trading, disbursement, or other restrictions on your Account as Schwab deems necessary, until such dispute or disagreement is resolved or until Schwab can interplead the assets in your Account and/or pursue other legal process or remedies regarding your Account. You agree to abide by any such restriction and to not initiate trades or transactions which would violate any restriction on your Account.

48. Disclosure of Account Information

We may disclose your name and/or information about your Account or your transactions to our agents and affiliates. We may also disclose such information to third parties in certain circumstances, including:

• To banks, mutual funds and other entities that are involved with the products or services we offer or arrange on behalf of our customers;
• When it is reasonably requested by a third party in connection with a transaction or an opportunity for you to participate in a transaction;
• To verify the existence or condition of your Account for a credit bureau or merchant;
• To comply with a subpoena, court order or request from a government agency or law enforcement authority;
• To evaluate your creditworthiness or the collectibility of any debt you owe us;
• To companies in which you hold securities (as defined in Rule 14b-1 under the Securities and Exchange Act of 1934), unless we receive your written objection; or
• If you give us your permission.

49. Trusted Contact Person and Temporary Holds on Your Account

A Trusted Contact Person (“TCP”) is someone at least 18 years of age you tell us we can contact if we suspect you may be subject to financial exploitation or if we have questions about your mental or physical well-being. For example, many people in their advancing years may demonstrate declining cognitive ability. The TCP may be able to help you and Schwab in such circumstances. Designating one or more TCPs is solely your decision and is optional.

By electing a TCP, you understand that you have authorized Schwab to contact the TCP at our discretion and to disclose any information about your account to help us address the situations noted above. This includes disclosing information about your account to address possible financial exploitation, confirming the specifics of your current contact information, your mental and physical health status, or the identity of any legal guardian, executor, trustee, or holder of a power of attorney on your account(s); or as otherwise permitted by industry regulations or state law.

If the account is an incorporated organization account, each authorized agent on your account is a TCP. This means that you have authorized Schwab to contact the TCP at our discretion and to disclose any information to address possible financial exploitation, to confirm the specifics of your current contact information, health status, or the identity of any legal guardian, executor, trustee, or holder of a power of attorney, or as otherwise permitted by industry regulations or state law.

If you have an advisor on your account (independent or affiliated with Schwab), you understand that you are authorizing both Schwab and your advisor to contact the TCP and we may share TCP information with each other and may coordinate on any conversations with a TCP and on any follow-up actions. You agree that Schwab will not be responsible for, and cannot monitor, your advisor’s use of the TCP information.

Your TCP will be the same for all your accounts (except for incorporated organization accounts), so if you provide or update your TCP for one account, it will apply to all of your accounts (except for incorporated organization accounts). You may change or remove your TCP at any time by contacting Schwab by phone, in writing, or through our website in the manner we designate. If your account has multiple owners, each account holder has the option to elect their own TCP(s). In other words, if this is a joint account, your TCP will not necessarily apply to your joint account holder. A TCP is a source of information for Schwab and is not a power of attorney. A TCP is not authorized to make investment decisions or withdraw funds from your account.

You authorize us to place a temporary hold on disbursements of funds or securities from your account or, in some cases, a temporary hold on transactions if Schwab reasonably believes financial exploitation has been attempted or has occurred in your account or in other circumstances we believe are necessary for your protection. You also acknowledge that we may report any reasonable belief of financial exploitation, or in other circumstances we believe are necessary for your protection, to the applicable state securities administrator, to a state adult protective services agency, or to law enforcement agencies.

Providing Schwab with a TCP does not ensure that financial exploitation will not be attempted or occur. You agree to indemnify and hold harmless Schwab, its affiliates, and their directors, officers, employees, and agents from and against all claims, actions, costs, and liabilities, including attorney’s fees, arising out of or relating to: Schwab contacting your TCP; Schwab putting a temporary hold on disbursements of funds and/or securities from your account; and Schwab not contacting your TCP or placing temporary holds on disbursements of funds and/or securities from your account.

50. Separability

If any term of this agreement is found to be invalid or unenforceable, all other provisions will remain in full force.

51. Entire Agreement, Amendment, and Waiver

The Account Agreement, as amended from time to time, is the complete statement of your agreement with us. On prior or concurrent written notice to you, we may modify or rescind existing provisions or add new provisions. By not closing or by continuing to use your Account, you confirm your agreement to abide by the Account Agreement, as amended from time to time.

Notwithstanding the foregoing, with respect to any Account subject to the terms of this Agreement that is a retirement plan or retirement plan brokerage Account (including a Company Retirement Account [“CRA”] or Personal Choice Retirement Account ® [“PCRA”]), Schwab may provide you (including independent Plan Trustees, Plan Sponsors, and/or other applicable plan fiduciaries or their agents) with notice of matters impacting your Account, which notice will include your direction, instruction, and authorization with respect to the action to be taken (or not to be taken, as applicable) as is practicable under the circumstances. You will be deemed to have directed, instructed, and authorized us to take such action (or to not take such action, as applicable) if you fail to provide us with written communication to the contrary within the time period set forth in our notice to you. Your provision of such written communication to us may result in termination of your Account, without penalty imposed by Schwab.

Amendments will not affect rights or obligations either of us incur before the effective date of the amendment. No prior conduct, past practice or oral statement by any Schwab employee or agent can amend or modify this written agreement, including, but not limited to, Schwab’s right to liquidate or close positions in a margin account at any time and without notice as set forth in the Margin and Short Account Agreement.

Waivers of rights under the Account Agreement must be expressed in writing and signed by the party waiving the rights. A waiver will apply only to the particular circumstance from which the waiver arose and will not be considered a continuing waiver in other similar circumstances, unless the intention to grant a continuing waiver is expressed in writing.

Our failure to insist on strict compliance with the Account Agreement or any other course of conduct on our part is not considered a waiver of our rights under the Account Agreement.

52. Certain Acknowledgments

You acknowledge and agree that Schwab is the principal underwriter of the Schwab Funds ® . This affiliation does not limit the authority of our representatives to provide you with information about any available investment vehicles, including third-party mutual funds that are not affiliated with Schwab.

You further acknowledge that Schwab and its affiliates receive certain remuneration for providing services to the Schwab Funds ® , Laudus Funds™, and Schwab ETFs™ (“Schwab Affiliate Funds”) in various capacities, including investment advisory and administrative services, as set forth in the prospectuses of the Schwab Affiliate Funds, as amended from time to time. In addition, Schwab receives shareholder servicing payments from the Schwab Funds ® and Laudus Funds™ for the services Schwab provides to fund shareholders that are customers of Schwab.

53. SIPC Protection

The Securities Investor Protection Corporation (SIPC) provides up to $500,000 of protection in Accounts you hold in a separate Account capacity (for instance, as custodian, joint tenant or sole owner), with a limit of $250,000 for claims in cash balances. For further details, please see www.sipc.org . This protection does not cover fluctuation in the market value of your securities. Account protection is not provided for the accounts of banks or broker-dealers maintained for their own account.

To obtain information about SIPC, including an explanatory SIPC brochure, please con-tact SIPC at www.sipc.org or 1-202-371-8300.

54. Unclaimed Property

To the extent applicable to your Account, the unclaimed property law requires us to turn over to the state of your last known address (as shown in our records) personal property which is unclaimed by its owner for a set period of time. Personal property includes assets in customer accounts (including your Schwab Account) as well as uncashed dividend checks and other Schwab checks payable to customers. In general, personal property is considered unclaimed if you have not performed at least one of the following activities within the period of time set by the state:

• Made a deposit, trade or withdrawal in your Account.
• Written to or otherwise contacted us about your Account.
• Otherwise shown an interest in your Account.

Before we turn over the assets in your Account (if any), we will, as required by law, send a notice to the address we currently show on your account statement. You may recover unclaimed property turned over to a state by contacting that state.

55. Cash-in-Lieu Payments

If you receive fractional shares as the result of a stock split or other corporate action, we, in our sole discretion, may either sell the shares on the open market or to the issuer or transfer agent, and you are entitled to receive your pro rata portion of the proceeds of such sale. If sold on the open market, the sale price may differ from that offered to certain registered owners by the issuer or transfer agent.

56. Interest, Dividend and Other Payments

If you are entitled to receive dividend, interest or other payments on investment instruments, we, in our sole discretion, may choose to pay such proceeds to you only upon receipt of payment by us from the issuer.

If the net amount of any dividend, interest or other payment set to be automatically disbursed to you by check is less than $100, it will remain as a credit balance in the Account and will not be automatically sent to you. Weekly disbursements less than $100 will accrue in your account until the end of the month and you will be sent a check if the combined total equals $100 or more.

57. Backup Withholding

Backup withholding is a tax withholding on specific types of payments for federal tax and state tax purposes. Backup withholding may be mandatory in certain circumstances. Most U.S. citizens and residents otherwise known as U.S. persons, which includes (a) a partnership, corporation, company, or association created or organized in the United States or under the laws of the United States, (b) an estate (other than a foreign estate), or (c) a domestic trust as defined in the IRS regulations, will be exempt from backup withholding if they properly report their name and Taxpayer Identification Number to the payer using Form W-9, affirming their information matches the IRS records, and they have not been notified by the IRS that they are subject to mandatory backup withholding.

58. Authorizations Granted to Advisors

For accounts managed by an advisor, any and all authorizations you grant to your advisor or other third parties with respect to your Account will apply to the successors and assigns of such advisor or other third party, subject to limitations of applicable law.

This provision applies if your Account is managed by an advisor and you have granted your advisor “trading and disbursement” authority and instructed Schwab (either on a form or otherwise) to accept that authority. The trading authority remains the same, and the disbursement authority will continue to include the ability of your advisor to move money from your Account to your accounts of identical registration, whether at Schwab or at other financial institutions, provided that your advisor has not informed Schwab that it has changed this authority. You understand and agree that it will also include the ability of your advisor to move money from your Account to other accounts on which you are a named account holder, whether at Schwab or at other financial institutions (known as “first party” money movement). Examples include journaling or wiring assets between: an individual’s account and his/her Individual Retirement Account; an individual’s account and his/her revocable living trust; a husband/wife’s joint account and the same husband/wife’s community property account.

59. Electronic Copies

The electronically stored copy of your (or your agent’s) signature, any written instructions or authorizations, the Account Application and the Agreement and Disclosures is considered to be a true, complete, valid, authentic and enforceable record, admissible in judicial, administrative or arbitration proceedings to the same extent as if the documents and records were originally generated and maintained in printed form. You agree to not contest the admissibility or enforceability of Schwab’s electronically stored copy of such documents in any proceeding between you and Schwab.

60. Optional Dividends

When a domestic company offers its shareholders a choice to receive a dividend either in cash or stock, we will use your dividend reinvestment election as the basis for allocating future distributions. In other words, accounts that have elected to have their dividends reinvested on the affected security will be credited optional dividends with additional shares, while accounts that have elected to receive their dividends in cash will be paid optional dividends in cash.

61. Processing and Execution of Electronic Transactions

We may elect to review electronic transactions manually before they are submitted. This manual review may result in a delay in execution. For securities transactions, this delay may cause a difference between the execution price and the displayed quote at the time the order was entered. This delay may also result in a limit order becoming ineligible for execution. For electronic funds transfers and wires, this manual review may delay when funds are paid or made available.

62. Independent Branch Leaders Who May Service Your Account

Some Schwab branch offices are operated by an Independent Branch Leader (“IBL”). Although IBLs are not employees of Schwab, they are registered representatives of Schwab and subject to Schwab policies and procedures. IBLs are identifiable by the inclusion of “independent” in their Schwab representative title, signage in their branches, and supporting detail under their “Your Consultant” designation on www.schwab.com . IBLs may hire their own employees to work in their branches. Like other Schwab representatives, IBLs will have access to customer information to help service accounts and sell Schwab products and services. Schwab will inform you if your Account is assigned to an IBL in your geographic area. Whether or not you are assigned to an IBL, you may request service at an IBL branch just like any other branch (for example, if you are traveling). Accounts managed by an advisor will not be assigned to an IBL.

63. When Check Deposits Are Available for Withdrawal or Transfer

When you deposit checks in your Schwab Account, they will become available for withdrawal according to our availability schedule. Details of the schedule are available by logging in to your Schwab Account at www.schwab.com , calling us or stopping by a branch. However, even when deposited funds are not available for withdrawal, you will receive interest or dividends on these held funds according to the Income on Free Credit Balances section in this document. At our discretion, funds represented by the check also may be unavailable for settlement of securities transactions during the hold period.

We reserve the right to redeposit any checks that do not clear the first time due to insufficient funds, or any other reason, with or without prior customer notification.

Margin and Short Account Agreement

When you buy securities on margin, or enter into short sales or short options, you are borrowing money from Schwab for part of your transactions. All securities and other assets in your Schwab accounts are pledged as collateral to secure this loan. These margin transactions are riskier and involve the possibility of greater loss than transactions where you are not borrowing money. If the value of your securities and other assets falls, you may be required to deposit more assets (a “margin call”) to secure your loan or your securities, and other assets may be sold to pay down or pay off your loan without prior notice and at a loss or at lower prices than under other circumstances. If you sell securities short and the value of the securities rises, you may receive a margin call requiring you to deposit additional assets and we may sell other assets in your Account to satisfy your margin obligation, without prior notice and at a loss or at lower prices than under other circumstances.

You agree to carefully consider your own financial condition, tolerance for risk and investment objectives, as well as market conditions, before you decide to use margin credit or short account features. By applying for a margin account and/or placing an order on margin, you acknowledge that you have, along with the terms of the margin agreement, carefully considered all of these factors and have decided that margin financing is appropriate for you.

Certain securities and other assets now or hereafter held in your Margin and Short Account may be pledged, repledged, or otherwise used. In such event, we can receive compensation for the use of such securities. The value of the Securities and Other Property we pledge or repledge may be greater than the amount you owe us. Securities that are fully paid for or are deemed “excess margin securities” under applicable securities laws may not be pledged, repledged, or used unless you have signed a separate written agreement that gives us the right to do so.

Therefore, before you utilize the Margin and Short Account Feature, you must carefully consider market conditions and your financial position and investment objectives. By applying for a margin account and/or placing an order on margin, you acknowledge that you have carefully considered your financial condition, investment objectives and tolerance for risk, along with the terms of the margin agreement, and have determined that margin financing is appropriate for you.

1. Payment for Transactions

You agree that you are responsible for paying for all transactions you make and all authorized transactions in your margin account. When you purchase securities on margin, you agree to deposit the required initial equity by the settlement date and to maintain your equity at the required levels. In addition, you agree to pay any debit remaining in your account if your positions are liquidated to satisfy a margin call. We may extend credit to you according to applicable laws and regulations and our Disclosure of Credit Terms and Policies. You agree to use this credit primarily for business and investment purposes.

2. Disclosure of Credit Terms and Policies

All transactions in the Margin and Short Account are subject to our Disclosure of Credit Terms and Policies. You agree not to enter an order in your Margin and Short Account until you have read and understood the Disclosure of Credit Terms and Policies.

3. Maintenance of Collateral

You agree to maintain in your Margin and Short Account collateral of the type and amount required by:

• Applicable exchange rules and federal regulations;
• Our Disclosure of Credit Terms and Policies; or
• As required by us, at our discretion.

4. Liquidation

Whenever it is necessary for our protection or to satisfy a margin call, deficiency, debit or other obligation owed us, we can (but are not required to) sell, assign and deliver all or any part of the Securities and Other Property securing your obligations, or close any or all transactions in your Schwab Account.

It is our policy to attempt to contact you, when practicable, before taking any action described in this section. However, we reserve the right to take any such action without prior notice or demand for additional collateral, and free of any right of redemption. Any prior demand, call or notice will not be considered a waiver of our right to sell or buy without demand, call or notice.

We can choose which Securities or Other Property to buy or sell, which transactions to close, and the sequence and timing of liquidation. We may take such actions on what-ever exchange or market and in whatever manner (including public auction or private sale) that we choose in the exercise of our business judgment. You agree not to hold us liable for the choice of which Securities or Other Property to buy or sell or of which transactions to close or for the timing or manner of the liquidation.

In certain circumstances we can, at our sole discretion, liquidate your entire margin loan balance to satisfy a margin call. You agree not to hold us liable for taking such action.

We can transfer Securities and Other Property from any non-retirement brokerage account in which you have an interest to any other non-retirement brokerage account in which you have an interest, regardless of whether there are other account holders on either account, if we determine that your obligations are not adequately secured or to satisfy a margin deficiency or other obligation. You agree to pay on demand any account deficiencies after liquidation, whether liquidation is complete or partial.

We are entitled to exercise the rights described in this section in our sole discretion, including whenever any of the following occurs:

• The equity level in your account falls below required minimums;
• Sufficient funds or securities are not deposited to pay for transactions in the account;
• A petition of bankruptcy or for the appointment of a receiver is filed by or against you;
• An attachment is levied against any of your brokerage accounts with us;
• You die or become incapacitated or incompetent; or
• Your Schwab Account is closed.

5. Short Sales

You agree to designate a sell order as a short sale if, at the time you place the order, you either do not own the security being sold or are unable to deliver the security in a timely manner. You agree that short sale transactions are subject to certain regulatory rules and cannot be executed under certain market conditions. In addition, depending on market conditions, Schwab cannot guarantee that it will have shares available to facilitate a short sale. When you make a short sale, it is necessary to borrow securities in order to deliver the shares to the buyer. Schwab can charge you a fee, which can change daily, for borrowing securities. Before you submit a short sale order, you will be notified of the current cost of borrowing those shares. By submitting the order you will have agreed to pay all charges for borrowing the shares for as long as you hold the short position.

You agree that we can, at our discretion and without notice, “buy in” securities to cover any short security position in your account. We may take this action either on a regular settlement, cash or next-day settlement basis.

If you are unable to cover a short security position (either through delivery of the security or through our “buying in” the security) in enough time so we can deliver the security to its lender (to whom we’re obligated), you agree to reimburse us for the losses we sustain as a result of your failure to deliver the security.

6. Interest on Debit Balances

We will charge interest on your debit balance according to our Disclosure of Credit Terms and Policies. We post accrued but unpaid interest charges to your account each month. We compound the interest as described in our Disclosure of Credit Terms and Policies.

7. Pledge of Securities and Other Property

8. loan consent.

You agree and acknowledge that Securities and Other Property held in your Margin Account, now or in the future, can be borrowed (either separately or together with the property of others) by us (acting as principal) or by others. With respect to Securities and Other Property held in your Margin Account, you also agree and acknowledge that:

• Schwab may place any security held in your Account into the Margin Account portion of your Account.
• Schwab can receive and retain certain benefits (including, but not limited to, interest on collateral posted for such loans) to which you will not be entitled.
• In certain circumstances, such borrowings could limit your ability to exercise voting rights, submit your shares for consideration in some corporate actions, or receive dividends, in whole or in part, with respect to the Securities and Other Property lent.
• With respect to any election you make in a corporate action while the Securities or Other Property in your Margin Account are lent to another borrowing counterparty, you understand that the borrower may vote the shares differently and/or make a different election. Schwab will process the corporate action for your account consistent with your election regardless of whether your distribution is paid directly from the issuer or indirectly by the borrowing counterparty.
• For Securities and Other Property that are lent by Schwab, the interest, dividends, or other payments made on such Securities and Other Property will go to the borrower. No compensation or other reimbursements will be due to you in connection with such borrowings. While Schwab is not required to compensate you for any differential tax treatment, if you are allocated a substitute payment in lieu of interest, dividends, or other payments, you understand that such a payment may not be entitled to the same tax treatment. Schwab may allocate payments in lieu of interest, dividends, or other payments by any mechanism permitted by law.

9. Account Agreement

All transactions in your Margin and Short Account are subject to the Account Agreement in its entirety and any other written agreements between you and us, all as amended from time to time.

Disclosure of Credit Terms and Policies

The following Disclosure of Credit Terms and Policies is required by the Securities and Exchange Commission and is part of your Schwab Account Agreement. It describes the terms under which we extend credit and charge interest and how your obligations are secured by property in your Schwab Account.

Note: Clients residing in the EU are not eligible for margin.

1. Interest Charges

We will charge interest on a daily basis on the credit we extend to you. The daily interest charges are calculated by multiplying your “daily adjusted debit balance” by the “daily margin interest rate.” Generally speaking, your daily adjusted debit balance is the actual settled debit balance in your Margin and Short Account, increased by the value of securities held short and reduced by the amount of any settled credit balance carried in your Cash Account.

We calculate your daily adjusted debit balance each day by adjusting your previous day’s balance by any debits and credits to your Account and by changes in the value of short positions.

If your daily adjusted debit balance is reduced because you deposit a check or other item that is later returned to us unpaid, we may adjust your Account to reflect interest charges you have incurred.

We reserve the right to charge interest on debit balances in the Cash Account.

Periodically, we will send you a comprehensive statement showing the activity in your Account, including applicable interest charges, interest rates and adjusted daily debit balances.

2. Daily Margin Interest Rate

The “daily margin interest rate” is based on a 360-day year. It is calculated for each day by dividing the applicable margin interest rate by 360. Please note that the use of a 360-day year results in a higher effective rate of interest than if a year of 365 days were used. The most current margin rate table is available at schwab.com/margin . Alternatively, you may call 1-877-870-7317 to request a paper copy of the most current margin rate table.

We set the Base Rate at our discretion with reference to commercially recognized interest rates, industry conditions relating to the extension of margin credit, and general credit market conditions. The current Base Rate is available at schwab.com/margin . Your margin interest rate will be adjusted automatically and without notice to reflect any change in the Base Rate. If your interest rate increases for any reason other than a change in the Base Rate, we will give you written notice at least 30 days prior to that change. For accounts with the margin feature, Schwab reserves the right, but has no obligation, to negotiate with you or an advisor who manages a Schwab account for you, a different margin rate for your Account.

For margin balances of $500K and above, please call us at 1-877-752-9749 for more information about our latest rate offers. If your Account is managed by an advisor, please contact your advisor directly or call Schwab Alliance at 1-800-515-2157.

3. Compounding Interest Charges

We compound interest on a daily basis. Interest charges will accrue to your Account each day. We will include the charges in the next day’s opening debit balance and charge interest accordingly. The interest rates described in Section 2 above do not reflect compounding of unpaid interest charges; the effective interest rate, taking into effect such compounding, will be higher.

4. Initial Margin Requirements

The Federal Reserve Board and various stock exchanges determine margin loan rules and regulations.

We will not extend credit unless your equity in the Securities and Other Property in your Margin and Short Account is at least $2,000, or such greater amount as may be required by applicable rules or regulations or our house policies. This minimum margin requirement may differ from the minimum amount required to open your Account.

When you purchase securities on margin, you agree to deposit the required initial equity by the settlement date and to maintain your equity at the required levels. The maximum amount we currently may loan for common stock (equity) securities is 50% of the value of marginable securities purchased in your Margin and Short Account; different requirements apply to non-equity securities, such as bonds or options. If the market value of stock held as collateral increases after you have met the initial margin requirements, your available credit may increase proportionately. Conversely, if the market value decreases, your available credit may proportionately decrease.

Initial margin requirements may change without prior notice. We may impose anytime and without prior notice more stringent requirements on positions that in our sole discretion involve higher levels of risk; for example, higher limits may apply for thinly traded, speculative or volatile securities, or concentrated positions of securities.

You may purchase only certain securities on margin or use them as collateral in your Margin and Short Account. Most stocks traded on national securities exchanges, and some over-the-counter (OTC) securities are marginable. At our discretion, we reserve the right not to extend credit on any security.

If the market value of a security drops below Schwab’s per-share minimum, the margin maintenance requirement will be 100%. Please call Schwab or visit our website for our current margin requirements.

5. Margin Maintenance Requirements

You must maintain a minimum amount of equity in your Account to collateralize your outstanding loans and other obligations. Margin maintenance requirements are set:

• By the rules and regulations of the Financial Industry Regulatory Authority, the American Stock Exchange and other regulatory agencies to the jurisdiction of which we are subject; and
• According to our sole discretion and judgment.

Margin maintenance requirements may change without prior notice.

We may issue a “margin call” (that is, a notification to deposit additional collateral) if your Account equity falls below the margin maintenance requirement. This can happen for various reasons. The most common reasons are a decrease in the value of long securities held as collateral or an increase in the value of securities held short.

As a general guideline and when it is practicable to do so, we may (but are not required to) issue a margin call when the equity in your Margin and Short Account falls below Schwab’s minimum maintenance requirement. The amount of additional collateral we require usually is an amount sufficient to raise your equity to Schwab’s minimum maintenance requirement. Please call Schwab or visit our website for our current margin requirements.

We retain absolute discretion to determine whether, when and in what amounts we will require additional collateral. In some situations, we may find it necessary to require a higher level of equity in your Account. For example, we can require additional collateral if an Account contains:

• Only one security or a large concentration of one or more securities; or
• Low-priced, thinly traded or volatile securities; or if
• Some of your collateral is or becomes restricted or non-negotiable or non-marginable.

We also may consider market conditions and your financial resources.

6. Day Trading Requirements

Day Trading is buying and selling the same security on the same day, excluding:

• A long position held overnight and sold prior to any new purchase of the same security, or
• A short position held overnight and purchased the next day, prior to any new sale of the same security.

Day Traders are subject to a number of strict requirements. These include requiring a minimum deposit of $25,000 before any day trades can be made in a margin account and using a different calculation of margin buying power. If you have questions about day trader margin requirements, please call your Schwab services specialist or margin specialist.

7. Short Option Positions

If you write uncovered put or call option contracts, your Account is subject to both initial margin and margin maintenance requirements. For more detailed information on how we calculate these equity requirements, call your Schwab representative at 1-800-435-4000. If your Account is managed by an advisor, please contact your advisor directly or call Schwab Alliance at 1-800-515-2157. In addition, if you write an uncovered call option contract and are allocated an exercise of the option, you may be required to borrow shares in order to satisfy the delivery requirement of the option contract. In that event, you will be treated as if you had sold the shares short and can be subject to margin fees and stock loan fees.

8. Short Sales

A short sale is a margin transaction subject to initial margin and margin maintenance requirements. In most cases, the initial equity requirement for the short sale of an equity security is 150% of the sales proceeds of the security, plus commissions. Equity securities selling for $5 or less and odd lots usually may not be sold short. Different requirements apply to non-equity securities.

Generally, current margin maintenance rules require you to maintain equity in your Account equal to at least Schwab’s minimum maintenance requirement for the market value of each stock “short” in your Account. Please call Schwab or visit our website for our current margin requirements. The value of securities held short in your Account is “marked to the market” each day. Increases in the market value will increase your daily adjusted debit balance (on which interest is charged) by the same amount, while decreases in the market value will decrease your daily adjusted debit balance by the same amount.

As a result of increases in your daily adjusted debit balance, the collateral held in your Account may become insufficient. (See “Margin Maintenance Requirements,” and “Liens and Liquidation.") Short sale proceeds are part of the collateral securing our loan of the security to you, and you may not withdraw these proceeds from your Account. You are liable for all dividends paid on securities you have borrowed for the purpose of short sales.

For our protection, we can, at our discretion and without notice, immediately cover your short security positions by purchasing for your Account securities to replace those sold short. We may cover your position because:

• The lender of the securities recalls them;
• We anticipate an inability to borrow or re-borrow these securities; or
• For any other reason.

If several accounts hold short positions in a security and not all of the positions are to be covered, we may select the positions to be covered on a random basis.

In covering a short position, we may at our discretion purchase securities for your Account either on a normal settlement basis, next-day or a cash settlement basis. The price of securities purchased on a next-day or cash settlement basis is usually higher than that of those purchased on a normal settlement basis. The price of covering the short position may be higher than the price at which you sold short; therefore, you may sustain a loss on that transaction.

You are liable for commissions and other costs of short sale transactions and for any debit balance that remains after we cover or close out a short position.

When we borrow securities for your Account, we are obligated to return the securities to the lender on demand. If you are unable to cover a short position (either through delivery of the security or through our “buying in” your position) in enough time for us to deliver the security to its lender, you agree to pay us for the losses we sustain as a result of the failure to deliver. For instance, if you have a short position in a security that is subject to a tender offer and you are unable to cover the position in time for us to deliver the security to its lender, we may hold you responsible for the economic value of the tender offer.

9. Liens and Liquidation

At our election, all debit balances in your Account, including those resulting from extensions of margin credit, will be immediately due and payable.

In the Schwab Account Agreement, you granted us a lien on all Securities and Other Property held or maintained for any purpose, including safekeeping, in your Schwab Account or in any other present or future Schwab brokerage account in which you have an interest regardless of whether there are other account holders on any of the accounts. This lien secures the full performance of obligations owed to us by you or any joint account holder of your Schwab Account, whether those obligations are incurred in connection with your Schwab Account or any other brokerage account with us, and extends to property that may not be acceptable as margin collateral under Federal Reserve Board regulations.

If your equity falls below the applicable maintenance requirement, we may (but are not obligated to) notify you, by mail, telegram, telephone, or electronic or other means, of a margin call for an amount sufficient to bring your Account up to the equity level we require.

Margin calls require prompt delivery according to our instructions of either additional funds or acceptable securities. Failure to make a required deposit may result in the liquidation of part or all of the Securities and Other Property in your Account.

Notwithstanding any oral communications between you and us, we reserve the right to liquidate anytime (including on or before settlement date) if the equity in your Account falls below Schwab’s minimum requirements. You will continue to be held liable on demand for any debit balance remaining after liquidation of assets in your Account.

It may not be possible to notify you of a margin call or allow any time to deposit additional collateral. Therefore, we reserve the right to initiate immediate liquidation procedures without notice.

You are responsible for monitoring the status of your Account, for ensuring that sufficient collateral is maintained in the Account and for liquidating positions to minimize losses. Any action we take or do not take to issue a margin call or liquidate collateral is undertaken solely to protect our interest as a creditor. You agree that we do not have any responsibility to issue a margin call, to liquidate positions in your Account or to select the securities to be liquidated or the manner or timing of the liquidation in order to prevent or minimize losses to you.

Schwab’s Cash Features Program

Schwab’s Cash Features Program is the service described in the Cash Features Program Disclosure Statement that we provide to automatically invest, or “sweep,” the Free Credit Balance in your Account into a liquid investment or to earn interest from Schwab on the Free Credit Balance in your Account. The Cash Features Program permits you to earn income while you decide how those funds should be invested longer term.

Cash Features refers to the following alternatives:

• The Bank Sweep and Bank Sweep for Benefit Plans features, each of which automatically makes deposits to and withdrawals from deposit accounts at one or more banks whose deposits are insured by the FDIC; and
• The “Money Fund Sweep” feature automatically invests in and redeems shares of a Schwab ® Sweep Money Fund; and
• The “Schwab One ® Interest” feature pays you interest on your Free Credit Balances.

Please note that certain foreign Schwab affiliates may have different Cash Features than the ones listed above.

Schwab can change the eligibility criteria for Cash Features on advance written notice to affected clients, or make certain Cash Features available to clients that do not otherwise meet published criteria.

You will not receive a separate confirmation for transactions in your Cash Feature. Your Account statements will reflect all transactions in your Cash Feature (including purchases, redemptions, dividends, dividend reinvestments, deposits, and interest).

Changing Your Cash Feature

When you opened your Account, you either selected a Cash Feature or were informed of the Cash Feature that was designated for your Account.

You authorize Schwab to make deposits, withdraw cash, or purchase and redeem securities in accordance with the eligible Cash Feature you have designated or the Cash Feature that has been designated for your Account.

You may change your Cash Feature election to another eligible Cash Feature by contacting Schwab.

If you request a change from one Cash Feature to one of the alternatives available to you, Schwab will generally effect that change the following Business Day, but reserves the right to take longer if necessary to properly process your request. This may result in the loss of one or more Business Days’ interest or dividends. During this time, we will earn and retain interest on your funds, generally at money market rates. See the “Float Disclosure” section for more information.

As a condition to changing your Cash Feature, Schwab will transfer the funds in your prior Cash Feature to your new Cash Feature. In other words, Schwab will redeem all shares in your Schwab ® Sweep Money Fund or withdraw all funds deposited at a bank, as applicable, and place the proceeds or the funds in your new Cash Feature.

Changes to Your Cash Feature and the Cash Features Program by Schwab

You understand and agree that Schwab can (i) make changes to the terms and conditions of our Cash Features Program; (ii) make changes to the terms and conditions of any Cash Feature; (iii) change, add, or discontinue any Cash Feature; (iv) change your investment from one Cash Feature to another if you become ineligible for your current Cash Feature, your Cash Feature is discontinued, or such change is required pursuant to any regulatory requirement; and (v) make any other changes to the Cash Features Program or Cash Features as allowed by law. Schwab will notify you in writing of changes to the terms of the Cash Features, changes to the Cash Features we make available, or a change in the Cash Features Program prior to the effective date of the proposed change.

If you become ineligible for a particular Cash Feature or if Schwab discontinues your Cash Feature, then you authorize Schwab to designate another Cash Feature for which your Account is then eligible and transfer the funds from the ineligible or discontinued Cash Feature to the Cash Feature designated by Schwab for you. Schwab will notify you in writing prior to such change. The notice will describe the new terms and conditions of the Cash Features Program, your new Cash Feature, and the options available to you if you do not wish to accept the new Cash Feature. If you would like to choose another Cash Feature that is an available option, you agree to respond to us in the manner and within the time period set forth in the notice. If you do not respond within the specified time period, you agree that Schwab may treat your non-response as your acceptance of the new Cash Feature. Your authorization will remain in effect until you give us notice to the contrary. Your notice to us will not affect any obligations resulting from transactions initiated prior to our receipt of the notice.

A change in your Cash Feature may result in the loss of one or more Business Days’ interest or dividends while your transaction is being processed. During this time, we will earn and retain interest on your funds, generally at money market rates. See the “Float Disclosure” section for more information.

Bank Sweep and Bank Sweep for Benefit Plans Features

The “Bank Sweep” and “Bank Sweep for Benefit Plans” features automatically make deposits to and withdrawals from deposit accounts at one or more banks as described in the Cash Features Program Disclosure Statement. The balances in your deposit accounts at the banks are eligible for FDIC insurance within applicable limits. Deposit accounts at the banks held in your Account are not eligible for SIPC insurance.

Sweep Procedures for the Bank Sweep, Bank Sweep for Benefit Plans, and Money Fund Sweep Features

You authorize us to act as your agent to make deposits to and withdrawals from deposit accounts at one or more banks or purchase and sell shares in a Schwab ® Sweep Money Fund in accordance with the Cash Features Program Disclosure Statement.

A Free Credit Balance of one dollar ($1) or more in your Account on any Business Day will be swept into one or more banks or Schwab ® Sweep Money Fund, as applicable, after the close of business on that Business Day and generally will not begin earning interest or dividends until the following Business Day. Proceeds from the sale of securities will be swept upon settlement, provided that the securities sold have been received in good deliverable form prior to the Settlement Date. Schwab has sole discretion to change when and how often sweeps occur upon advance written notice to you.

If, on any given day, the accrued daily dividend for your Schwab ® Sweep Money Fund as calculated for your Account is less than half of one cent ($0.005), your shares will not earn a dividend for that day. In addition, if you do not accrue at least one daily dividend of $0.01 during a pay period, you will not receive a money market dividend for that period.

If your deposit accounts or Schwab ® Sweep Money Fund, as applicable, accrue interest or dividends, resulting from the investment of money represented by a check or other item that is later returned unpaid, we will debit your Account for the amount of the interest or dividends.

Money Fund Sweep Feature

The “Money Fund Sweep” feature automatically invests in and redeems shares in a Schwab ® Sweep Money Fund as described in the Cash Features Program Disclosure Statement.

Investments in the Schwab ® Sweep Money Funds are subject to restrictions described in the applicable Schwab ® Sweep Money Fund’s prospectus. For more complete information about a Schwab ® Sweep Money Fund, including charges and expenses, read the fund’s prospectus carefully. An investment in a Schwab ® Sweep Money Fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency.

Although investments in Schwab ® Sweep Money Funds provide a means of earning a return on cash, there can be no assurance that a Schwab ® Sweep Money Fund will be able to maintain a stable net asset value of $1 per share. In the event that a Schwab ® Sweep Money Fund is no longer able to maintain the net asset value of its shares at $1, then you authorize and instruct Schwab, without further notice to you, to redeem all of your Schwab ® Sweep Money Fund shares as soon as commercially practicable and deposit the proceeds in your Account.

Schwab ® Sweep Money Funds may, to the extent permitted by law, include money market funds for which Schwab or its affiliates receive transaction and other fees for providing services (such as investment advisory, administration, transfer agency, distribution, and shareholder services), and these fees will vary depending on the money market fund (or share class) used. No portion of these fees will reduce or offset the fees otherwise due to Schwab in connection with the Account unless required by law.

Pursuant to regulation or law, your account may be ineligible to invest in certain Sweep Money Funds.

Schwab One ® Interest Feature

The Schwab One ® Interest feature pays you interest on cash awaiting investment. If you are receiving interest from Schwab under the Schwab One ® Interest feature, you agree that the Free Credit Balance in your Account is maintained for purposes of making investments, and not solely for the purpose of receiving such interest. Schwab reserves the right to stop paying interest on your Account, change your Cash Feature, close your Account, or take any other action if Schwab, in its discretion, concludes that your Free Credit Balances are maintained solely for the purpose of receiving interest.

The Schwab One ® Interest feature is subject to the terms and conditions set forth in the Cash Features Program Disclosure Statement, including the manner of setting interest rates and the crediting of interest. If, on any given day, the interest that Schwab calculates for your Account in accordance with the foregoing is less than $0.005, you will not earn any interest on that day.

Schwab will pay interest on remittances by check beginning on the first or second Business Day after the check is deposited, depending on the location of your bank. Interest will accrue even if a hold is placed on the check. However, if we have credited your Schwab One ® Account for interest on funds represented by a check or other item that is later unpaid, we will charge your Schwab One ® Account for the amount of the interest paid.

Limited Liability

If Schwab fails to sweep, or pay interest on, your Free Credit Balance according to the Cash Features Program Disclosure Statement, Schwab’s liability is limited to the actual amount of interest or dividends you would have earned had the Free Credit Balance been invested, deposited, or credited in the manner described in the Cash Features Program Disclosure Statement.

You agree to hold us harmless if we do not make withdrawals or liquidate shares to satisfy debits in your Account. If you intend to send funds to settle securities transactions, we must receive these funds on the Business Day before the Settlement Date to prevent an automatic redemption.

Float Disclosure

You agree that Schwab will retain as compensation for services your Account’s proportionate share of any interest earned on aggregate cash balances held in Schwab’s bank account with respect to (1) assets awaiting investment or (2) assets pending distribution from your Account. Such interest retained by Schwab shall generally be at money market rates.

Assets awaiting investment or deposit include: (1) amounts deposited by you into your Account; and (2) any other uninvested assets held by your Account caused by an authorized instruction to Schwab to purchase or sell securities (which may, after the period described below, automatically be swept into a Schwab Sweep Money Fund or deposited into a Sweep Bank). With respect to such assets awaiting investment or deposit: (i) where such assets are received by Schwab on a Business Day and before deposit cutoff time for the local Schwab Investor Center with which the funds are deposited, such interest may be earned by Schwab through the beginning of the following Business Day; (ii) where such assets are received on a day which is not a Business Day, or where such assets are received after the local Schwab Investor Center’s deposit cutoff time, such interest may be earned through the beginning of the second following Business Day.

When Schwab receives a request for a distribution from your Account, Schwab generally processes the request within two or three Business Days (unless the distribution is in connection with an unusual event such as death or divorce, in which case it generally will take longer to process the request). On the same day that the processing is completed, the amount of the distribution will be debited from your Account. The distribution check will be written and mailed on the following Business Day. You agree and acknowledge that Schwab will earn interest beginning on the date your Account is debited and ending on the date the check is presented for payment, the timing of which is beyond the control of Schwab. Upon request, Schwab will provide you a verbal update to determine the status of your outstanding distribution checks.

If you request a Schwab MoneyLink ® transfer from your Account to another financial institution: (i) the amount of the transfer will be debited from your Account on the day that the transfer process is commenced; (ii) the funds will be received by the other financial institution within one to two Business Days of the date the transfer process is commenced; and (iii) you agree and acknowledge that Schwab may earn interest on that amount beginning on the date your Account is debited and ending on the date the Electronic Fund Transfer is received by the other financial institution and thereby debited from Schwab’s bank account.

If you choose to change your Cash Feature from one Cash Feature to another, or if Schwab changes your Cash Feature from one Cash Feature to another, you will generally stop earning interest or dividends, as the case may be, on the day of your request. If you or Schwab designate a new Cash Feature before the close of business on a Business Day, your Free Credit Balances will be swept to your new Cash Feature after the close of business that Business Day, and generally will begin earning dividends or interest, as the case may be, on the following Business Day. If you or Schwab designate a new Cash Feature after the close of business or on a non–Business Day, your Free Credit Balances will be invested or deposited into your new Cash Feature after the close of business on the next Business Day, and generally will begin earning dividends or interest on the Business Day following the next Business Day. If you request that Schwab automatically send dividends, interest, or other payments directly to you, and the Account has a Schwab ® Sweep Money Fund as a Cash Feature, net payments will not accrue interest between the time they are credited to the Account and the time they are disbursed to you.

1. Provision of Schwab StockBuilder Plan ®

Your enrollment in the Schwab StockBuilder Plan ® is activated one Business Day after you notify us by telephone, or five Business Days after receipt of your letter, that you wish to enroll an eligible security. When your enrollment is activated, you agree to be bound by this Schwab StockBuilder Plan ® Agreement as well as any other agreements between you and us that apply to your Account.

You may direct us to add the Schwab StockBuilder Plan ® to all eligible securities in your Account, or you may choose individual securities for automatic dividend reinvestment. To add or remove the Plan with respect to securities in your Account, you must notify us at least one Business Day prior to the day on which dividends or other eligible cash distributions are payable for those securities.

Dividends are reinvested on all securities you have selected that you own on the record date for determining shareholders eligible to receive dividends, as long as you still own any whole shares of such securities on the dividend payable date.

Dividend reinvestment does not assure profits on your investments and does not protect against loss in declining markets.

You agree to pay our Schwab StockBuilder Plan ® transaction fees, as they exist from time to time and apply to your transactions and services you receive. The Schwab StockBuilder Plan ® is not affiliated with any reinvestment plan offered by any other entity. However, Schwab may choose, at its own discretion, to participate in a third-party dividend reinvestment program.

2. Eligible Securities

Securities listed on the New York Stock Exchange or the American Stock Exchange, or traded on Nasdaq, are generally eligible for the Schwab StockBuilder Plan ® , except for foreign securities, short positions (obligations to sell securities you did not own at the time the order was placed) and Over the Counter Bulletin Board ® securities.

3. Eligible Cash Distributions for Reinvestment

Most cash distributions on eligible securities selected for participation in our Schwab StockBuilder Plan ® may be reinvested, including most regular dividends, capital gains distributions, and the like. However, cash-in-lieu, special dividends, interest, and distributions of any kind that are larger than 5% of the share value cannot be automatically reinvested. You may not combine funds from eligible cash distributions with any funds you deposit into your Account to make automatic reinvestment purchases.

4. Dividend Reinvestment Transactions in Eligible Securities

We will combine cash distributions from your Account with those from other customers requesting reinvestment in the same security and use these funds to purchase securities for both you and these other customers. We will credit to your Account the number of shares equal to the amount of your funds to be reinvested in a particular security divided by the purchase price per share. If several purchase transactions are required in order to reinvest your and other customers’ eligible cash distributions in a particular security, the purchase price per share will be the weighted average price per share for all such shares purchased. Timing of purchases is subject to our discretion.

5. Partial Shares

Automatic reinvestment of your eligible cash distributions may give you interests in partial shares of securities, which we will calculate to four decimal places. You will be entitled to receive dividend payments proportionate to your partial share holdings. If an account is transferred, if a stock undergoes a reorganization or if stock certificates are ordered out of an account, those partial share positions that cannot be transferred or reorganized will be liquidated at prevailing prices. Partial shares are not available to be issued out of an account in certificate form. No commission will be charged for these transactions. Timing is subject to our discretion. You will also be entitled to receive proxy voting materials and voting rights proportionate to your partial shares, except in the event of certain types of corporate reorganizations. In mandatory corporate reorganizations, your partial shares will be handled according to the terms of the particular reorganization. In voluntary reorganizations, instructions you give us will only be applied to your whole shares.

In the event of a rights offering to holders of an eligible security, we will cause the rights accruing to all partial shares of that security that are subject to the Schwab StockBuilder Plan ® to be sold, and we will invest the proceeds in shares of that security.

Automatic dividend reinvestment may give you a partial share position in securities that are callable in part. In the event of a call, the partial shares to be called will be selected in an automated random selection in which the probability of your holdings being selected is proportional to the holdings of all Schwab customers who hold partial share positions in that security. You have the right to withdraw from your Account cash-in-lieu of your uncalled, fully paid, partial share positions prior to the publication date of a partial call.

You have the right to liquidate fractional shares anytime, regardless of whether or not a call has been announced. Once a call has been announced (the “publication date”), all shares participate in the random call process, regardless of whether they are registered or held in street name. If you no longer have the shares you had on publication date, and your position is called, you will need to cover those shares.

6. Confirmations on Statements

All transactions made through the Schwab StockBuilder Plan ® will be confirmed on your regular account statement. You may obtain immediate information by calling our toll-free number.

7. Continuing Effect of Authorization; Termination

You authorize us to purchase for your Account shares of the securities you have selected for the Schwab StockBuilder Plan ® . Authorizations under this section will remain in effect until you give us notice to the contrary at least one Business Day prior to the day on which cash dividends are paid. Such notice will not affect any obligations resulting from transactions initiated prior to our receipt of the notice.

8. Automatic Dividend Reinvestment Transactions in The Charles Schwab Corporation Stock

The following applies only to account holders who add or remove the Schwab StockBuilder Plan ® with respect to stock of The Charles Schwab Corporation (“SCHW”) held in their Schwab ® Account.

To add or remove the Plan with respect to SCHW stock in your Account, you must notify us by telephone at least one Business Day prior to the day on which dividends or other eligible cash distributions are payable for SCHW stock securities.

We will appoint an independent bank or broker-dealer, other than Charles Schwab & Co., Inc., to act as buying agent for automatic reinvestment of eligible cash distributions in SCHW stock. We may change this buying agent anytime. We will pay all brokerage commissions or service charges assessed by the buying agent that apply to automatic reinvestment transactions in SCHW stock. We will also bear all administrative costs of the Schwab StockBuilder Plan ® that are in SCHW stock.

We will promptly forward to the buying agent all eligible cash distributions that we receive from SCHW for the Schwab StockBuilder Plan ® participants. The buying agent will use all funds it receives on behalf of service participants to purchase shares of SCHW stock in the open market. The buying agent may buy such shares through us or through another broker-dealer. Shares purchased by the buying agent will be delivered to us as your administrative agent. We will credit your Account with the number of SCHW shares equal to the amount reinvested on your behalf divided by your price per share. Your price per share will be the weighted average price of all SCHW shares purchased for Schwab StockBuilder Plan ® participants by the buying agent with the funds from a particular eligible cash distribution.

In the event of an exchange or tender offer for shares of SCHW stock, we will promptly supply requests for instructions to each account holder who has chosen SCHW stock for the StockBuilder Plan. We will not take any action with respect to any such exchange or tender offer without specific instructions from you.

Electronic Services Agreement

This Electronic Services Agreement amends your brokerage account agreement(s) and replaces any prior agreement between you and Schwab regarding your use of the Electronic Services.

1. Use of Electronic Services

Scope of the Agreement —This Electronic Services Agreement (the “Agreement”) between you and Schwab states the terms and conditions that govern your use of Schwab’s Electronic Services. It is part of your brokerage account agreement. The term “we,” when used below, means Schwab. The term “Electronic Services” includes all of Schwab’s computer, telephonic, facsimile, email, or wireless services or systems. This includes services and information accessible through Schwab, or service providers used by Schwab, including, but not limited to:

• Schwab’s proprietary software such as Velocity ® and StreetSmart Pro ® ;
• Schwab’s website;
• Schwab’s computers and networks that are accessible externally;
• Schwab by Phone™ and TeleBroker ® ;
• Schwab’s wireless services, including Schwab Wireless; and
• Any other computer, telephonic, or wireless securities trading services or information system Schwab provides to you, including successors to the systems described above.

Services Provided —Schwab’s Electronic Services allow you to enter orders to buy and sell certain securities, stock options, and mutual funds within your Schwab Account, and to access securities price quotations, investing information, and your personal account information. The Electronic Services are accessible via computer, telephonic or wireless transmissions for use on compatible personal, home or small-business computers, including Internet appliances with modems, terminals, and network computers, as well as various wireless devices. You understand that in order for Schwab’s Electronic Services, including future services available from Schwab, to perform to your satisfaction, or at all, you are solely responsible for the hardware, software or other technology you use to access Schwab’s Electronic Services. Schwab will not be responsible for any service difficulties resulting from your failure to possess technology adequate to use Schwab’s Electronic Services to your satisfaction.

Your Agreement —By using Schwab’s Electronic Services, you agree to comply with the terms and conditions of this Agreement. Schwab has the right to modify or terminate this Agreement in any way at any time, and we will provide you with notice of any modifications. You further agree to abide by any rules, procedures, standards, requirements or other conditions we may establish in connection with the use of our Electronic Services or any other electronic communications services made available by Schwab.

2. Risks of Electronic Trading

Access to the Electronic Services may be limited or unavailable during periods of peak demand, market volatility, systems upgrades or maintenance, or for other reasons. If the Electronic Services are unavailable or delayed at any time, you agree to use alternative means to place your orders, such as calling a Schwab representative or visiting one of our branch offices. Schwab will not be liable to you if you are unable to access your account information or request a transaction through the Electronic Services. (See Limitations of Liability, Section 5.)

When you use the Electronic Services to place a trade order, you acknowledge that your order may not be reviewed by a registered representative before being routed to an exchange for execution and you also will not have the opportunity to ask questions or otherwise interact with a Schwab representative. By placing a trade order through the Electronic Services, you voluntarily agree to assume any added risk that may result from the lack of human review of your order in exchange for the reduced commissions and potentially greater convenience of electronic trading.

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How to handle the accounting for collateral assignment split-dollar life insurance plans.

By Marc Giampaola , Director, Assurance Services & Michael Parillo , Senior Manager, Managed Services & Consulting

Split-dollar life insurance is an arrangement between two parties to share the costs and benefits of a permanent insurance policy. Often these arrangements are between an employer (the “company”) and an employee (the “executive”), involving a whole life or indexed universal life (“IUL”) policy. Companies generally use the policies as a Supplemental Executive Retirement Plan (“SERP”), which are considered non-qualified benefit plans.

The two most common types of split-dollar life insurance arrangements are endorsement and collateral assignment, which are defined based on which party controls the policy. Within these agreements, there are multiple documents executed, most commonly:

• Life insurance policy – Issued by the insurance company to the policy owner on the life of the insured.
• Split-dollar agreement – Agreement between employer and employee providing details of the agreement.
• Promissory note – A loan issued by the company to the employee for the cost of the policy.

Endorsement split-dollar life insurance is an employer-owned policy that endorses some or all of the death benefits to the employee’s beneficiary. The employer owns and controls the policy and, therefore, makes all policy decisions (i.e., surrender). A separate agreement is entered into between the employer and employee to define the split of costs and benefits between the two parties.

Collateral assignment split-dollar life insurance policies are owned by the employee with some benefits assigned to the employer. The employee owns and controls the policy while the employer makes the premium payments. Premiums are loans to the employee. Some level of interest on the amount borrowed must be paid. The employer is ultimately reimbursed for the premiums paid and related interest from the death benefit or the cash surrender proceeds.

There are different types of collateral assignment arrangements based on the structuring of the note within the agreement. They are as follows:

• Non-recourse arrangements rely solely on the underlying insurance policy for all repayment of principal and interest to the employer. The employee, or the employee’s estate, is not responsible for funding any shortfall by the policy to return the premium and related interest; however, any shortfall could be taxable to the employee as forgiveness of debt income.
• Limited recourse arrangements rely primarily on the underlying insurance policy for all repayment of principal and interest owed to the employer. However, if there is a shortfall, the employee or the employee’s estate may be called upon to make up the deficiency. These arrangements generally have terms requiring the employer to seek payment from the life insurance company first; the employee is secondarily liable.
• Full-recourse arrangements are similar to limited-recourse arrangements, with the difference that the employer can seek repayment of the principal and interest from the employee directly if there is a shortfall, without first pursuing any recovery from the life insurer. The employee has substantially the same net liability for any shortfall but would have the burden of satisfying the shortfall and then pursuing recovery from the policy.
• Providing cash to the insurance company and establishing a premium deposit account;
• Establishing a deposit account at a bank or credit union under the employee’s name; or
• Purchasing a single premium immediate annuity (SPIA).

The method of funding has no impact on the accounting, as there is a single loan made to the employee.

Most commonly, companies utilize collateral assignment split-dollar life insurance set up under non-recourse or limited-recourse arrangements. As such, the focus of the accounting section will be on these types of arrangements.

RELEVANT GUIDANCE

• ASC 310: Receivables (“ASC 310”)
• ASC 325: Investments – other (“ASC 325”)
• Loans and investments, November 2020 Edition (“PwC Loans Guide”)

ACCOUNTING FOR SPLIT-DOLLAR ARRANGEMENTS

The accounting for split-dollar arrangements is generally the same regardless of the structure of the agreement. Additionally, whether the promissory note is non-recourse or limited-recourse has no effect on the journal entries recorded over the life of the arrangement.

Recording the Loan at Issuance

In executing the transaction, the employer provides funding for the premium payments of the life insurance policy in exchange for a promissory note from the employee. The transaction meets the definition of a loan as defined by ASC 310-10, which states:

A contractual right to receive money on demand or on fixed or determinable dates that is recognized as an asset in the creditor’s statement of financial position. Examples include but are not limited to accounts receivable (with terms exceeding one year) and notes receivable.

Upon issuance of the loan, the employer provides cash through one of the funding methods described above and establishes a loan receivable from the executive. As an example, assume the defined loan amount is $3.0 million. The value of the loan is measured at issuance equal to the cash outlay by the Company. ASC 310-10-30-2 states:

As indicated in paragraph 835-30-25-4, when a note is received solely for cash and no other right or privilege is exchanged, it is presumed to have a present value at issuance measured by the cash proceeds exchanged.

In these arrangements, the company does not provide any other right or privilege. The promissory note is received in exchange for the cash needed to fund the premiums of the policy. As such, the value of the loan is equal to the cash paid.

The journal entry to record the example transaction is:

Recording the Interest Accrual

Once the loan is established, it begins earning interest based on the note rate, typically the long-term Applicable Federal Rate for the month and year the agreement becomes effective. Interest compounds annually. In the example transaction, assume an annual interest rate of 2.50%. Each month the company earns interest on the outstanding loan balance, and a journal entry is recorded to accrue interest on the loan. Interest is paid from the death benefit and, therefore, increases the receivable from the executive in each accounting period. The entry below represents the monthly accrual of interest:

(calculated as $3,000,000 loan * 2.5% interest / 12 months)

Recording the Settlement of the Loan

The loan is settled upon death or surrender of the policy. The company is entitled to the value of the original loan and accrued interest from inception. The cash owed to the company is paid from the death benefit or surrender value, with the remainder being paid to the employee (surrender) or the employee’s estate (death). Based on the example, assuming settlement and surrender of the insurance policy 24 months post entering into the policy (i.e., $150,000 interest earned), the entries to record the receipt of cash and settlement of the receivables are as follows:

Other Considerations for Subsequent Measurement

Collectability.

At each period-end, the company needs to analyze the value of the outstanding loan for changes in the valuation. Generally, these loans are considered not held for sale and, therefore, are reported at outstanding principal adjusted for any charge-offs, allowance for loan losses, deferred fees, and unamortized premiums or discounts based on ASC 310-10-35-47, which states:

Loans and trade receivables that management has the intent and ability to hold for the foreseeable future or until maturity or payoff shall be reported in the balance sheet at outstanding principal adjusted for any chargeoffs, the allowance for loan losses (or the allowance for doubtful accounts), any deferred fees or costs on originated loans, and any unamortized premiums or discounts on purchased loans.

Additionally, the company should analyze at each period-end any probable collection issues and the need for an allowance that would reduce the asset balance.

Value of the Loan

With an insurance policy securing the loan, further consideration is needed to determine the value of the loan. For endorsement arrangements, the employer owns the policy and, therefore, owns the surrender decision. The company values the loan at the lesser of the premiums paid or cash surrender value of the policy as of the period end date. This amount can generally be obtained from the statement provided by the insurance company.

For collateral assignment arrangements, the employee owns the policy, so the company does not control the surrender decision. However, the company does maintain the right to collect on the loan under the collateral assignment. Therefore, the company may need to consider the cash surrender value of the policy when determining the value of the loan. ASC 325-30-35-1 states:

An asset representing an investment in a life insurance contract shall be measured subsequently at the amount that could be realized under the insurance contract as of the date of the statement of financial position…

Depending on the type of note used in the agreement–non-recourse or limited-recourse– when determining the carrying value of the loan at each period-end.

Limited-Recourse

For limited-recourse, the loan is secured by the cash surrender value of the insurance policy, but the company also has the option to seek repayment from the employee if the cash surrender value is less than the outstanding loan amount. Since the loan is secured by both the policy and by the employee, the cash surrender value is not the only consideration when determining the value of the outstanding loan. As such, the value of the outstanding loan does not need to be adjusted if the cash surrender value is less than the outstanding loan, and there is no further consideration needed at period-end for these types of arrangements.

Non-recourse

For non-recourse notes, the loan is secured solely by the cash surrender value of the policy and, therefore, potential for a loss related to the loan exists if the cash surrender value is less than the loaned amount. The cash surrender value is the realizable amount of a life insurance contract at any given date. The accounting guidance does not allow a life insurance asset to exceed cash surrender value less an allowance for credit losses. The company is entitled to the premiums paid plus interest earned under these arrangements. The carrying value of the portion of the loan for which premiums were paid would need to consider the cash surrender value. This portion of the loan would be valued by the company as the lesser of the cash surrender value and the cumulative premiums paid by the reporting entity.

This is based on the premise that surrender is not within the control of the company and it is uncertain whether the company will be reimbursed for cumulative premiums paid upon death or surrender. Any premiums paid in excess of this amount should be recorded as an expense.

As an example, if the outstanding loan related to a non-recourse policy was $3,000,000 and the cash surrender value of the policy was $2,500,000, the company would need to reduce the carrying value of the loan to the cash surrender value and recognize a loss related to the loan. The entry below represents how the company would record the adjustment:

While the general accounting for these arrangements is similar, specific details and terms within all documents included in the agreement need to be evaluated when determining the appropriate accounting, and companies should consult their accountant with any questions. Additionally, there are potential individual income tax implications for the executive related to these arrangements that should be considered.

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What Is A Collateral Assignment Of Life Insurance?

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A collateral assignment is sometimes a necessity if you’re applying for larger financing amounts such as a mortgage or business loan.

But what is a collateral assignment and how do you go about getting it on your life insurance policy? 

In this article, we’ll cover what collateral assignment is, how you can add it to your life insurance, and what alternatives there are out there. 

What Is Collateral Assignment? 

A collateral assignment is a process by which a person uses their life insurance policy as collateral for a secured loan.

In simple terms, collateral assignment is reassigning priorities for who gets paid the death benefit of your life insurance policy.

What Is a death benefit?

A death benefit or face value of a life insurance contract is the amount of money that your beneficiaries will receive from your policy when you die.

Once you apply for collateral assignment and it’s approved, your specified debtor (the loan provider) will be paid first and then your beneficiaries will receive what is left over in your life insurance policy.

This is different from using your cash value to loan money as you are taking out a loan from another financial institution and using your policy as a guarantee that you’ll cover any debt when you die. 

For example, let’s say you want to take out a secured loan from your local bank and want to use your life insurance policy as a collateral assignment.

In this situation, you’d still have to pay back any debt you have with interest during the loan period. 

However, the life insurance policy would be used if the borrower dies and there was an outstanding loan balance remaining. 

Secured Loans vs. Unsecured Loans

Secured loans are debts that are backed by assets that a lender can claim if the debt isn’t repaid. These types of loans often offer better interest rates and more generous payment terms.

Unsecured loans are debts that don’t have collateral. These types of loans are more expensive to repay and considered riskier than secured loans.

Source: Pexels

How Does Applying for Collateral Assignment Work?

The process for getting collateral assignments for life insurance is the same as when you apply for new life insurance coverage. 

All you’ll be doing is indicating to your life insurance provider that your lender will be given priority for the amount of money you have borrowed through them.

There is an:

Application process.

Underwriting process.

Offer that you’ll receive.

You’ll be required to name beneficiaries as well as indicate ownership of the life insurance policy in the collateral assignment form which will be provided by your life insurance company.

This is because you’re changing the terms of your payout and your life insurance provider will need to follow these instructions once you die.

NB Some insurance companies don’t offer collateral assignment on new loans and generally only provide this feature to an existing life insurance policy.

You should check beforehand to see what will be required to apply for a collateral assignment. If you need help finding plans that offer this, send an email to a licensed insurance agent today.

Once you’ve assigned a new collateral assignee to your life insurance policy, they will be entitled to lay a claim on your death benefit for any debt you have with them.

For example, let’s say you take out a collateral assignment life insurance policy worth $200,000 for a loan of $75,000 over 7 years at an interest rate of 18%.

If you die after five years, based on these figures, you’ll still have $41,231.02 owed on your loan.

Your $200,000 life insurance plan will be used to cover this and your beneficiaries will receive the remaining $158 768.98 from your life insurance policy.

Your lender is only allowed to take the amount outstanding on the debt owed and cannot take more. 

What about Missed Payments and Cash Value Life Insurance?

If you have a permanent life policy with a cash value account, sometimes called cash value life insurance, your lender will have access to it to cover missed payments on your loan.

For example, let’s say you miss a payment on your loan and have a collateral assignment. Your lender will be able to access your cash value account and withdraw that month’s payment to cover your debt.

Who Can You Add as a Collateral Assignee?

You can add any person or institution as a collateral assignee to your life insurance policy if you owe them money.

This can include banks, lenders, private individuals, businesses, or credit card companies. 

The most common collateral assignments are for business loans and mortgages. This is because they are loans for high amounts that are paid off over several years. 

In fact, some banks and financial lenders may require that you add them as collateral assignees when you apply for any of the financing options mentioned below.

Common Collateral Assignees Include:

💵 Bank loans

💳 Credit cards

🏡 Mortgages

💼 Business loans

What Do I Do If I’ve Paid Off My Debt?

If you’ve managed to pay off your debt - firstly, congratulations! Secondly, you’ll want to notify your life insurance company that you’ll be changing your collateral assignments on your life policy.

While there is no legal claim that a company can make to debts that aren’t owed anymore, there may be a hold up in paying out the death benefit to your beneficiaries and other collateral assignees.

Life insurance companies will have to figure out who must be paid first, according to the order stated in your collateral assignment terms.

In general, life insurance policies will settle claims within 24 hours of being notified of a policyholder’s death.

The process can be delayed if you do not release your collateral assignees from your life insurance contract. 

Tips to Make Sure Your Life Policy Is Paid Out Quickly

Here are some tips if you want your beneficiary claims to be handled as fast as possible:

1) Keep a copy of your life insurance policy and policy number in a safe place or with your lawyer, financial advisor, or estate planner.

2) Speak to your beneficiaries about your policies and give them the contact details of the relevant life insurance company.

3) Make sure your life insurance contract is updated to reflect your latest list of beneficiaries.

4) Make sure you have your beneficiaries' details listed in the contract or with your lawyer.

The Benefits of Using Collateral Assignment of Life Insurance

While adding a collateral assignment to your current life insurance policy may require an application, paperwork, and time, there are benefits:

Many lenders like it: Banks and financial institutions sometimes prefer it when applicants use their life insurance policy as collateral for a loan. This is because they know that their debt will be serviced long-term by your insurance company which makes their loan to you a lower risk.

Your private property won’t be jeopardized: The last thing you want when you go into debt is to put your personal items, such as your car, investments, or home on the line as collateral. Using collateral assignment is an alternative to this and can protect you in the event that you can’t service your debt.

It can be affordable for some people: If you’re in good health and young, you may be paying affordable rates for permanent life cover. In situations like this, it can make sense to use your life cover as collateral for debts you’ve incurred.

What Are Some Alternatives to Collateral Assignment?

Term Life Insurance: Getting a term life insurance contract to cover specific debts is one way of ensuring your estate and family are protected when you die.

There are multiple types of term life insurance plans and they are more affordable than permanent life insurance. This makes options like level term life insurance and decreasing term life insurance ideal for different types of debts you may have over your lifetime.

What Is Term Life?

Term life is a temporary life coverage option that lasts for a specific period of time. It is different from permanent life insurance which lasts until you die or you stop paying premiums.

Term life contracts are typically between 5 to 20 years, however, you can get renewable term life plans and even a forty-year term life plan .

Borrow from your life insurance: If you have a permanent life insurance policy, such as universal, whole, or indexed life cover, you can borrow money from your cash value account. 

However, keep in mind that you’ll be required to pay interest on any amount that you borrow and any amount of debt incurred will be deducted from your policy’s death benefit when you die.

What Is Cash Value?

Cash value is a feature of permanent life insurance plans that policyholders can contribute additional money toward while they have a policy in force.

This money is set aside in a cash value account which is tax-deferred and can be used in a number of ways.

In some cases, if your policy allows it, you can end your contract and get the cash surrender value of it. This amount is usually much less than the value of your total life insurance contract. 

Our Verdict on Collateral Assignment

Many banks, lenders, and financial institutions want long-term guarantees that you’ll be able to service your debt if anything happens to you.

In some situations, getting collateral assignments on your life insurance to cover these debts is a good option for people who are trying to access finance from these institutions. 

However, there is a risk that your death benefit payout may be delayed for your beneficiaries if you don’t keep your different collateral assignees up to date.

If you already have a life insurance policy, you should contact your provider to find out what the process is and what you’ll need to do to change the collateral assignees on your policy.

If you don’t have a policy yet, our advice is to look at all of your options before you decide to take a permanent life insurance contract with a collateral assignment.

There are alternatives out there that are more affordable if you’re looking to protect your family and estate from debt.

Term life is one such option that is adaptable to your life and easy to get. 

For example, a decreasing term life insurance policy might be the right choice for someone who has recently bought a home and wants to cover their mortgage while they pay it back.

Another option is final expense insurance, which is a permanent life policy for smaller amounts, usually under $50,000.

With final expense insurance, your beneficiaries can pay for anything they want, including any debts you may have had in your life.

The process for applying is simple and you won't have to go through a medical exam or intensive underwriting as you would with traditional permanent life insurance. 

If you need any assistance with finding, comparing, or learning about the different life insurance options to cover your debts, speak to one of our expert advisors today at 1-888-912-2132 or [email protected] .

Where Can I Learn More about Life Insurance?

If you’re looking to learn more about life insurance, different kinds of coverage, or costs, visit our life insurance hub to find our latest articles.

We do the research so that you don’t have to and our articles cover complicated topics like what is a cash value account, what is key person insurance, or how long life insurance takes to pay out a death benefit.  

If you need help with quotes, try out a life insurance quote finder or reach out to us via email at [email protected] to get in touch with a licensed life insurance agent for your state.