Getting Life Insurance For SBA Loan
In the process of getting a Small Business Administration loan from the bank, they always seek to know if you have life insurance. The main reason for this is to ensure that the loan gets to be clear even in the case of your untimely demise. With the assurance of loan payment even in your death, the lender rests easy knowing that there is less risk incurred while giving you a loan.
Requirements for You to get SBA Life Insurance
Not all Loans require you to have life insurance. Life insurance is called upon in the event that in the absence of the individual i.e. the owner of the business would die. The following are some of the requirements that you may need so as to secure a life insurance policy that might help you get an SBA loan.
Presence Of An Active Life Coverage
You as a business owner needs to have an insurance cover that you have been servicing at a personal level. The policy needs to be in existence before getting a loan.
There Should Be Enough Coverage
The benefit to be collected after your death should be of an equal amount or more when compared to the loan that you want to take. The term of your life insurance should also be equal or more than the period of time that you are supposed to take in clearing the loan.
There Should Be a Collateral Assignment
Proper documentation of the collateral assignment must be part and parcel of the life insurance at hand. One might ask, "what is a collateral Assignment?"
Well, the collateral assignment has a simple explanation according to InsureChance. When you as a life insurance policyholder give the lender, in this case, a bank the collateral assignment, you are giving the bank the privilege to be part of the beneficiaries of your life insurance policy. The bank having the collateral assignment they are given first priority in getting a part of your death benefit to pay off the outstanding balance on the loan payment. After the balance has been paid off the remainder shall be given to the other beneficiaries, who is your next of kin.
Types of Insurance Coverage You Should Get
The two major types of life insurance that you can take into consideration are whole life and term life insurance. Term life insurance is not that expensive when compared to whole life insurance. In most cases, the term life insurance is the one used to serve SBA loans.
Term Life insurance
A deeper look into term life insurance and gets to release that it has some wonderful rates that tend not to change over time. In addition to that term, the life insurance policy has a specific number of years that are to be taken in coverage. This makes it the best resort in servicing SBA loans. The reason being the loans themselves take a short time period for their payout.
No Medical Exam Life Insurance
For one to qualify for term life insurance one has to go through a medical exam, but by so doing this might bar some business owners from getting the life cover. The other downside of taking the medical exam, it makes the entire process long and tedious. So if you want a quick route into getting a life cover then you should opt for the no medical exam insurance cover. The only issue with it is that the rate will be slightly higher than that of the term life insurance.
Steps for Setting Up Of a Collateral Assignment
Immediately after getting to decide on the life insurance policy you need. You will have to fill out a collateral assignment form. During the filling of the form, a couple of things must be given great attention.
The collateral assignment includes the lender as part of your beneficiaries. The lender is to receive a full loan payment of the outstanding balance in case you die before clearing it.
A list of other beneficiaries should be included. They are the ones to take what is left of the death benefit after the loan payment.
The collateral assignment has to be signed by you and the lender(bank). This is to show that you both agree to the terms before handing it over to the insurance company.
Finally, after the loan has been fully paid back the collateral assignment is done away with.