Life Insurance for SBA Loans?
Follow Scott Karstens
If you have considered or are about to begin the application process for a Small Business Administration (SBA) loan you may be required to have a life insurance policy as collateral for the loan.
With loans as large as $5 million it’s understandable the SBA would require life insurance to lower its risk of default.
The death benefit of the insurance you choose will have to be at least as much as the total amount of the loan. Term insurance is often the type of life insurance chosen because of its simplicity and flexibility. And it is required that your policy be active before the loan will be approved.
Instant Decision Life Insurance
You can quote, customize and buy life insurance in 10 minutes or less! No need to wait to speak to an agent, you got this!
What is the difference between a beneficiary and collateral assignment?
Remember that the life insurance you are buying is on your life. You will assign a beneficiary but it will NOT be the lender. The beneficiary will be whomever you determine. The lender will be given a collateral assignment on the policy which means it will be repaid the amount it is owed at the time of your death and no more.
For example, assume you are applying for a $100,000 loan to be paid over 10 years. After five years the loan balance will have decreased as you have made payments. If you die at year five of the 10-year note your life insurance will fund the remaining amount due to the lender—something less than $100,000—and your beneficiary will receive the balance. When the loan has been repaid you will still have a $100,000 life insurance policy on yourself and you can choose whether to keep it or not.
It’s important to understand this difference because if you choose to use existing personal life insurance to collateralize an SBA loan, you may be assigning benefits away from your loved ones should the unexpected happen.
What is the process to apply for the best life insurance for an SBA loan?
Getting life insurance as collateral for an SBA loan should not be difficult or complicated.
The process is automated, instant, and exactly the same as if you were applying for only yourself with one exception: you will be required to complete collateral assignment documents once you have been approved.
Thankfully we have made buying life insurance fast and easy, the entire process takes less than 10 minutes for most. Here are 5 easy steps to buy life insurance through Quote Bot:
Step 1: Start a quote. This process takes less than a minute because we need very little information to instantly show you a quote that you can customize. You just need to know your name, date of birth, state, general health, and tobacco status. We always send you a link to this quote for you to refer back to.
Step 2: Continue application. On your quote, we provide a link to continue to the application. This brings your first through a short pre-qualification so you know if you’re expected to qualify. This process can be as fast as two minutes to complete.
Step 3: Complete application. Once you see the pre-qualification results you can complete the application. This process takes between 5-10 minutes depending on your health history and customizations chosen. You will receive another instant verification of your expected eligibility before you sign your application. You will also put your payment information in on this step, but you are not charged until the insurance company has approved your signed application.
Step 4: Sign your application. After you received your approval you will be able to instantly electronically sign your application. Once you finish your signatures, we bring you back to the final decision page and the Insurance Company will let you know within 90 seconds of your approval status. The insurance company will send your policy for electronic delivery after you’ve been approved!
THAT’s IT! It really is that simple and for most, this can be completed from beginning to end in 10 minutes or less.
Once you have your instant decision life insurance in place, you need to send us an email or chat with us on screen and we will arrange the collateral assignment documents for you. These will need to be signed by you and the bank so it is properly documented that you both understand the collateral assignment exists. Once you have everything signed we will process it with the insurance company and then you’re all set.
What type of life insurance is best for collateral on an SBA loan?
We recommend 10-Year Term Life Insurance for collateralizing SBA loans. It will be the most affordable and flexible option. If you would like longer coverage, no problem, you will have plenty of options on the length of the term to choose from, however, so you can choose to lock your coverage in from 10 to 30 years and your premiums will be the same for whatever time period you choose.
If you’re applying for $1,000,000 of life insurance or less and you’re age 18-50 or applying for $500,000 ages 51-65, you may be able to use our instant decision process. This means you could get covered in less than 10 minutes! Sometimes the insurance company may require you to take a medical exam though. While we can help you with that process we would encourage you to choose a policy type that does not require a medical exam as long as it fits the amount and payback time frame required by your loan. If your SBA loan is for more than that we still automate the process for you, you just may need an exam. Remember, however, that you will still be required to provide information on your health throughout the application.
If you already own life insurance that can be used for an SBA loan as long as it meets the terms of the loan, keep in mind that whatever the SBA loan requires will tie up that amount of your existing life insurance. Said another way: you probably had good reasons for buying the life insurance you currently have. Doing this would, at least for the term of the SBA loan, reduce the amount of insurance going to your business or loved ones.
Who owns the life insurance policy?
For many, you may be a sole owner of a small business or you may have one or two partners. In this case, it is common to personally own life insurance. This is often preferred in closely held businesses because you can use the life insurance for personal planning once the SBA loan collateralization is no longer needed. If you prefer, some businesses like to have the business own the policy. This would currently keep us from offering this automated solution, but we do have alternatives. Click here if this is the way you prefer things to be set up. The only drawback is that it’s more challenging to use the life insurance for personal planning later when it is structured this way.
Use our instant decision process!
We have created a simple solution to help quote, customize and buy life insurance in less than 10 minutes. Without needing to talk with an agent.
You can build your own plan that allows you to choose your coverage amount and instantly see your rates. You can also instantly choose other policy benefits, change benefit amounts, change coverage duration and see the results instantly on your screen. Then you can apply and be approved in minutes!
Which Type of Insurance is right for you?
Everyone has their own needs, wants, and wishes for buying life insurance. Ultimately the best life insurance policy is the one that pays out to your beneficiaries when you need it to. Working with a Quote-Bot will help you find a budget-conscious life insurance plan to make sure your family members or business partners are properly taken care of when you need them to be. Here are two of our most popular term life insurance products.
How much does life insurance cost?
Age | Gender | $100,000 | $250,000 | $500,000 | |
25 25 25 | Female Male Instant Decision | $7.66 $9.40 Instant Decision! | $10.01 $14.36 Instant Decision! | $13.92 $22.62 Instant Decision! | |
35 35 35 | Female Male Instant Decision | $8.53 $9.40 Instant Decision! | $12.18 $14.36 Instant Decision! | $18.27 $22.62 Instant Decision! | |
45 45 45 | Female Male Instant Decision | $12.09 $14.62 Instant Decision! | $20.23 $24.58 Instant Decision! | $34.37 $43.07 Instant Decision! | |
50 50 50 | Female Male Instant Decision | $17.05 $20.79 Instant Decision! | $29.15 $36.76 Instant Decision! | $51.77 $64.38 Instant Decision! | |
55 55 55 | Female Male Instant Decision | $23.84 $29.58 Instant Decision! | $42.20 $53.29 Instant Decision! | $73.52 $93.53 Instant Decision! | |
60 60 60 | Female Male Instant Decision | $34.02 $46.11 Instant Decision! | $61.77 $84.83 Instant Decision! | $107.88 $148.77 Instant Decision! | |
65 65 65 | Female Male Instant Decision | $51.94 $70.12 Instant Decision! | $95.48 $129.85 Instant Decision! | $164.87 $224.90 Instant Decision! |
The above rates are run for the Age & Gender shown, in the State of Colorado at Preferred Plus underwriting (best underwriting). These rates are not a valid offer, you will need to complete a quote to view the initial rate for your situation, and the application process will verify your rate.
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Our quoting process takes about a minute to complete and view your quote. We also instantly update your quote with any changes you would like to see, without having to start all over!
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For many, you can go from our quote to a completed purchase in less than 10 minutes! Our Instant Decision process keeps you from having to wait around to see if you qualify.
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We pride ourselves in providing high-quality and well-planned solutions no matter how big or small your need is. Our solutions will bring you from concept to completed purchase in minutes!
Frequently Asked Questions
Nuestro proceso y nuestras soluciones están diseñados para ayudar a eliminar la necesidad de hablar con un agente. Pero sí, puede hablar con un agente si lo desea. Puede utilizar la función de chat de esta página o llamar y hablar con un agente.
Our process and solutions are designed to help remove the need to talk with an agent. But yes, you can speak with an agent if you like. You can use the chat feature on this page or call and speak with an agent.
El impago de una prima es un asunto importante que hay que tener en cuenta y, afortunadamente, existen programas que le ayudan a recibir una notificación en caso de impago. Normalmente, dispone de un periodo de gracia de unos 30 días para efectuar el pago. La compañía de seguros le enviará un correo electrónico, pero también puede enviarle correo en papel, para informarle del problema de pago y darle instrucciones sobre cómo resolverlo. Si no efectúa ningún pago durante el Periodo de Gracia, tendrá que volver a someterse al proceso de suscripción para mantener su cobertura.
Missing a premium is an important thing to know about and thankfully there are programs in place to help notify you if you do miss a payment. Typically you have around a 30-day grace period to make your payment. The insurance company will email you but may send you paper mail, making you aware of the payment issue and giving you instructions on how to resolve it. If you do not make a payment during the Grace Period, you will have to go through underwriting again to keep your coverage.
Si tiene entre 18 y 50 años y solicita una prestación por defunción de hasta 1.000.000 $, o si tiene entre 51 y 65 años y solicita una prestación por defunción de hasta 500.000 $, es posible que no necesite someterse a un examen. Cuando presenta una solicitud fuera de esas edades o prestaciones por defunción, se le exige un examen médico. No te preocupes, te ayudaremos a organizarlo. Estos exámenes son obligatorios (si son necesarios) para que la compañía de seguros pueda comprobar si cumple los requisitos y el importe de la prima.
If you are age 18-50 and applying for up to $1,000,000 of Death Benefit, or ages 51-65 applying for up to $500,000 of Death Benefit, you may not need an exam! When you apply outside of those death benefits or ages, you are required to have a medical exam. Don’t worry, well will help arrange that for you. These exams are required (if needed) so the insurance company can verify your eligibility and your premium amount.
Decisión instantánea significa que le comunicaremos inmediatamente (posiblemente hasta en 90 segundos) si ha sido aprobado o no, si necesitamos más información, si ha sido rechazado o si necesita un examen. No hace falta esperar mucho para obtener respuestas.
Instant decision means that we will let you know immediately (possibly up to 90 seconds) whether or not you are approved, if we need more information, if you were declined or if you need an exam. No need to wait around very long for answers.
Nuestro proceso de Decisión Instantánea tarda 10 minutos en completarse para la mayoría. Algunos son más rápidos, otros más lentos. La buena noticia es que una vez que haya terminado de rellenar su solicitud, le daremos las respuestas al instante o en un plazo de 90 segundos más o menos. Es rápido.
Our Instant Decision process takes 10 minutes for most to complete. Some are faster, some are slower. The good news is that once your done with your application, we give you answers anywhere from instantly or up to a 90 second wait or so. It’s Fast!
No. Nos esforzamos por ofrecer una solución que le permita ir de principio a fin en cuestión de minutos sin necesidad de hablar con un agente.
No. We strive to provide a solution that allows you to go from beginning to end in minutes without the need for speaking to an agent.
