Life Insurance & Disability Insurance Requirements
The SBA may require borrowers to carry some amount of life insurance or disability insurance as a condition of receiving financing. Usually the life insurance or disability insurance is required on one or all of the “key” employees.
Some things to consider when you look for insurance in this situation.
Don’t wait until the last minute start this process. Start at least 45 days out from your expected closing date. Most polices can be issued much faster. However, face amount, age and health history can increase the time it takes to underwrite and get a policy issued.
Term – Term insurance is usually the most cost effective option when your looking to fulfill the life insurance requirement. If your term loan is 10 years simply purchase a 10 year level term to coincide with it.
Collateral Assignment – Do not list the bank/ lender as the beneficiary on your policy. Typically when your paying principal and interest on a loan the balance will decrease over time. In the event you die you only want the bank/lender to get the balance that is due on the loan. After the policy has been placed in force a collateral assignment form should be completed. With the collateral assignment form on file the bank/ lender will have to provide documentation as to the balance of the loan remaining. That amount will be paid to the bank/lender and any remaining will be paid to your original beneficiary listed on the policy, such as your spouse, children, etc.
Medical History – Insurance companies do not treat all medical history the same. If you have medical history such as diabetes, cancer, high blood pressure, anxiety, etc. You need to talk to an independent firm such as Cornerstone. We can go to the market and see who will make the best offer based on your specific medical history.