1. 63254 POINTS
    Peggy MacePRO
    CEO and Senior Agent, Outlook Life, Inc, Most of the U.S.
    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. 4470 POINTS
    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
  3. 1976 POINTS
    Ronald HinchPRO
    Regional Marketing Director, Capital Choice Financial Group,
    Yes, a life insurance policy can be used as collateral for a loan. There is a specific form that the agent has to file with the application called a collateral assignment form. The form must list the information of the bank or financial company that is holding the loan and, of course the client information as well. Both parties must sign.
    Answered on April 28, 2016
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