1. 10968 POINTS
    Tim Wilhoit
    Owner, Your Friend 4 Life, Brentwood TN
    There are a lot of factors to answer this question. First only cash value life insurance would be considered collateral. These are whole life, universal life, variable life and indexed universal life policies. Next the loan institution would have to approve it. Not all banks will consider life insurance as collateral. Contact the loan institution first and if they consider cash value life insurance as collateral then contact your life insurance company for an updated illustration for the exact cash value amount.
    Answered on July 29, 2014
  2. 11498 POINTS
    Jason Goldenzweig
    Co-Founder, TermInsuranceBrokers.com, Goldenzweig Financial Group, Las Vegas, Nevada
    Yes - this is a fairly common question. When a person needs a business loan from a bank, the bank will usually require life insurance as collateral in case you died before paying off the loan. This is because the bank wants to get repaid for the loan.

    The structure of the policy will be the same as a regular life insurance policy including the beneficiary designation, so as the loan gets paid off, the difference would be paid to the beneficiary. You merely need to add a collateral assignment form when you submit your application for coverage.

    I hope the information is helpful - please feel free to contact me for help getting the insurance in force and if you have any other questions. Thanks very much.
    Answered on July 30, 2014
  3. 63333 POINTS
    Peggy Mace
    Most of the U.S.
    We get a lot of customers looking for short Term Life Insurance policies as collateral for loans, as required by the Small Business Administration. By assigning the life insurance policy to the SBA, the Small Business Administration is assured that they will get their money back if the borrower meets with an untimely death. Because the term is short, the cost is very reasonable. This type of request is usually on a rush basis, so we generally use a No Exam policy that has low cost choices. Please feel free to contact us any time for life insurance as collateral for your loan.
    Answered on July 30, 2014
  4. 410 POINTS
    Drew Ward
    Owner, LifeInsuranceForBusinesses.com, Atlanta, Georgia
    Life insurance is required as collateral at the lenders request. The SBA does not require life insurance on every loan so check with your lender to determine what the requirements are. The SBA website has a loan checklist you can download.

    If your lender does require life insurance, you can use an existing policy assuming it meets the collateral requirements laid out by the lender or you can purchase a new policy for the exact amount of coverage required by the lender.

    The best idea is to check with the lender to see whats required.
    Answered on August 20, 2014
  5. 14231 POINTS
    Tom Sheehan
    Agency Owner, The Thomas G Sheehan Agency, 27 Glen Road Sandy Hook, CT 06482
    My colleagues have handled this pretty well actually. As has been said, there are a couple of factors and ways that Life Insurance may be used as collateral for a loan. The most common requiers the policy to be some form of permanent Life Insurance with a reportable cash value. These types of policies are certainly considered when a commercial banking institution is measuring one's net worth and underwriting a loan application just as bank accounts or other investment holdings. However, if the loan is for business purposes, for example, if a contractor is purchasing a major piece of equipment, a condition of the loan may be the purchase of even a short term Life policy which would then be collaterally assigned to the lending institution.
    Answered on December 29, 2015
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