Hawaii Insurance License Practice Exam

In what scenario would an assignment of benefits occur?

1. When a policyholder wants to avoid bankruptcy

2. When policyholders transfer rights to claim proceeds

3. When an insurer denies a claim

4. When a spouse passes away

The correct answer is: When policyholders transfer rights to claim proceeds

An assignment of benefits occurs specifically when policyholders transfer their rights to claim proceeds to another party. This process allows the new party—often a contractor, repair shop, or healthcare provider—to directly receive payments from the insurance company for services rendered or damages incurred. This method is frequently utilized in situations where the policyholder is unable or unwilling to deal with the insurance claims process themselves, enabling them to focus on recovery or repairs while ensuring that the service provider is compensated promptly. The other scenarios do not accurately depict situations where assignment of benefits would be applicable. For instance, avoiding bankruptcy relates more to financial strategy than the transfer of benefits. Similarly, a claim denial does not involve a transfer of rights; it highlights a refusal by the insurer to pay out based on the policy's terms. Lastly, the passing of a spouse pertains to issues of estate and inheritance rather than the assignment of insurance benefits.