If you are a business owner requiring a loan for your business through your bank or Small Business Administration (SBA), you may be surprised when the loan officer, or lender, requires you to purchase a life insurance policy to cover the loan amount. It is not uncommon for the bank, or SBA, to require you to have a life insurance policy collaterally assigned to the bank, or SBA, to cover the loan amount.
If you need a life insurance policy quickly as a requirement for a bank or SBA loan, call us toll free 888-777-7574 as we have a company that has same day approval with no medical exam requirements.
What is Collateral Assignment Life Insurance?
Generally, when you purchase a life insurance policy you name a beneficiary that has insurable interest to you the insured. This could be a spouse, family member or business partner.
When dealing with a life insurance policy for a bank loan, or SBA loan, it’s still the same concept. You will name your primary beneficiary, but the bank, or SBA, will be listed as the “collateral assignee”. The collateral assignee basically becomes the primary beneficiary on the life insurance policy. If you pass away the bank will receive the balance of the loan from the death benefit and your primary beneficiary will receive the balance after the loan payoff.
IMPORTANT: When you have paid off your loan it is very important to get the bank, or SBA, removed from the policy with what is called a release of collateral assignment form. This is a simple form that is signed by the loan officer releasing them from that policy. Failure to release the bank or SBA can result in delay of your primary beneficiary receiving the death benefit.
Why is a Life Insurance Policy Required for a Bank Loan?
If the bank, or SBA, is requiring you to purchase a life insurance policy as terms of the loan agreement, it’s generally due to the size of the loan and the risk the bank is taking if you pass away unexpectedly. The life insurance policy ensures that the bank, or SBA, will receive the full balance of the loan.
Before the loan is issued, the bank will require proof that the life insurance has been purchased and put inforce.
Recommended Life Insurance Coverage
There is not a special type of life insurance for a bank, or SBA, loan. However, there are policies that are more beneficial for this situation than others.
10 or 15 Year Term Life Insurance
Most collateral assignments we work with tend to be 10-15 year loans, making a simple term life insurance policy ideal coverage. Term is the cheapest form of coverage and will allow you to get higher death benefits at a cheaper cost than that of a permanent life insurance policy.
The quote engine to the right of the page will allow you to compare both 10 year and 15 year rates for the cheapest coverage. Not to mention, all available companies are rated with a strong financial grade of A or better. Check out our list of the Top 8 Best Term Life Insurance Companies.
15, 20 or 30 Year Return of Premium
A return of premium, or ROP, life insurance policy is another coverage option we like to recommend when dealing with collaterally assigned life insurance policies. At the end of your term contract, the life insurance company will send you a check for the full amount of premiums paid into the policy tax free.
Most life insurance companies offer ROP policies in 20 and 30 year fixed premium length, but Prudential Life Insurance offers a 15 year return of premium policy if you need something shorter than 20 or 30 years.
No Medical Exam Term Life Insurance
If you need a life insurance policy quickly to secure a loan, there is always the no medical exam option. Going with a no medical exam term life insurance policy avoids having to schedule an exam date with an examiner saving on underwriting time. No medical exam term life insurance policies tend to cost a little more than traditional term, but they can be issued much quicker than a traditional term life insurance policy. No medical exam term life insurance and the companies that offer them.
Getting you Coverage Quickly
Top Quote Life Insurance has helped assist many business and small business owners secure their collaterally assigned life insurance for bank or SBA loans. We always recommend that you give your lender, or loan officer, our contact info so we can work with them and help provide them with everything they need to get your loan issued as quickly as possible. We understand that collaterally assigned life insurance policies need to get done quickly as your business can’t afford any delays in operating.
Life Insurance Policy for a Bank Loan
Top Quote Life Insurance provides the best in term and permanent life insurance rates from over 20 of the best life insurance companies in the business. Feel free to run a comparison quote with the quote engine located to the right of this page or call us 888-777-7574 and we will get started securing you a life insurance policy for your loan. Have questions? Send us a message below and will get right to work.