Why SBA Life Insurance is Needed
SBA Life Insurance or Key Man Life Insurance – Many sole proprietorship and partnerships need funding to get their business moving forward. In some cases, for a small business to secure a loan or investor capital, the business may be required to carry Key Man Life Insurance on its principals. The SBA requires a Key Man Life Insurance policy to protect its loan and will not fund a loan until the policy is in force.
Loans funded by the Small Business Administration (SBA) are generally not small loans. The size can vary for several thousands to the millions. This figures ultimately puts the lending institution at ask and that risk needs to be protected by way of life insurance.
What Type of Coverage is Needed?
SBA Life Insurance or Key Man Life Life Insurance can be term life or permanent life insurance policies.
Because the coverage is for a specific individual, several personal factors can affect SBA Life Insurance premiums including:
Age and overall health including general medical history, pre-existing and/or chronic health conditions such as diabetes, heart disease, cancer, etc.
Collateral Assignment for SBA Life Insurance
When setting the up the beneficiary on a SBA Life Insurance or Key Man Life Insurance policy that is required by the lender, who should be the beneficiary? This is simple question with a complex answer. There are times when the loan has to be collateralized but not all insurers accept this practice. You have to take great care in knowing which insurers are receptive to this financial strategy which protects the lender. The lender should not be the beneficiary, but the policy should be assigned to the lender. The collateralization occurs at different time than the naming of the beneficiary.
An SBA loan is a great way to start and grow your business. Banks will require a vehicle to protect their investment. Key Man Life Insurance is the avenue most lenders prefer. The collateral assignment should be established at the request of the lender.