1. Peggy MacePRO
    COO and Senior Agent, Outlook Life, All 50 States
    Yes, you can use a life insurance policy as collateral in some situations. The Small Business Administration (SBA) often requires a life insurance policy on the borrower so that they can get their loan paid by the policy in case of death of the insured. Key employee life insurance can sometimes be used as collateral for obtaining business loans. 

    To use a life insurance policy as collateral for a loan, most lenders require that the policy be assigned to them. This is done by a collateral assignment form. The beneficiary of the policy is usually a relative of the policy owner, but the collateral assignment form allows the lender to take what is owed to them first. Then the remainder goes to the beneficiary stated.
    Answered on June 21, 2013
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