We are requiring Promissory Note, Assignment of Life Insurance, Physical possession of policy (and collateral receipt), and Verification of Life Insurance policy form which we maintain annually. Is it necessary to hold the policy in collateral vault if all other steps are taken?

It's a pretty darn good idea. What if the borrower dies and you don't have the policy to contact the actual company (as opposed to the agent)? What if the company gets bought out and you need the policy in order to get a reissue?

Belt & suspenders here. The policy is a whole lot safer in your collateral vault than in the borrower's file cabinet, shoe box, paper bag, junk drawer...

Don't you get proof of assignment from the insurance company? We don't hold the actual policy, since we have confirmation from the insurance company that they have assigned a certain amount of the policy to us, until we cancel that. We also get quarterly updates as to what the value of the life insurance is.

We do obtain the acknowledgment of our security interest in the policy from the company, and have begun requiring an annual verification letter.

In the state of Louisiana, physical possession of a life insurance policy is required to perfect a lien and it is governed by Article 9. All other state removed perfection of a life insurance policy from Article 9 coverage. That is why an acknowledged of assignment from the insurance company is important.