1. COO and Senior Agent, Outlook Life, All 50 States
    Yes, life insurance can be used as collateral. The Small Business Administration (SBA) often requires that their loan applicants purchase life insurance as collateral for their loans. This is generally done by assigning the value of the life insurance policy to the agency who is accepting it as collateral for the loan.
    Answered on August 21, 2013
  2. Brandon RobertsPRO
    Owner, The Insurance Pro Blog,
    Yes life insurance can be used as collateral and the way in which is used as collateral varies depending on intent.  Some lenders require life insurance death benefit to back a loan balance, this is common for small business loans.

    In other cases, one can also pledge the cash surrender values in a life insurance policy as collateral to a loan.  Many banks, thrifts, credit unions, and trust companies have written procedures on their requirements for pledging life insurance as collateral.  Mostly that the company be an AM Best A or better rated carrier and that the loan to value ratio never exceed a certain percentage.
    Answered on August 22, 2013

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