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.
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.
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.
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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.