Most lenders require a life insurance policy to secure a loan. I can help.

Life insurance secures a business loan through a "collateral assignment," where the lender is assigned a stake in the policy's death benefit, ensuring loan repayment if the insured passes away.

Here's a more detailed explanation:

Collateral Assignment:

Instead of being the primary beneficiary, the lender is assigned a portion of the life insurance policy's death benefit as collateral for the loan.

Loan Repayment:

If the business owner (or key person) dies while the loan is outstanding, the lender can use the assigned portion of the death benefit to repay the loan.

Beneficiary Protection:

Any remaining portion of the death benefit, after repaying the loan, is paid to the designated beneficiary.

Lender Protection:

This arrangement protects the lender, ensuring repayment even in the event of the borrower's death, which can be a significant risk in business lending.

Loan Security:

Lenders often require life insurance as collateral, especially for loans that are not fully secured or rely on a single key individual.

Types of Policies:

Both term and permanent life insurance policies can be used as collateral, with permanent policies offering the added benefit of cash value that can be used to pay off the loan.

SBA Loans:

SBA loans, particularly those under the 7(a) program, often require life insurance as collateral to protect lenders if the business owner passes away.