If you have applied for an SBA loan, you might also need a life insurance policy. Yes, life insurance is something that presents itself during the pursuit of an SBA loan. Life Insurance for SBA Loans, It’s an extra step that money lenders might want you to take to safeguard their interest because most small businesses are run by one or a few key people. So, if something happens to the key person, the money lenders would still get their money back on the loan. Therefore, most money lenders will require borrowers to opt for a life insurance policy as a necessary condition to receive financing from them.
On the bright side, this helps the borrower enjoy low-interest rates. The money lenders keep the interest rates low because the borrower minimizes the risk involved in the deal by obtaining a life insurance against the SBA loan. Not to forget the fact that the creditors won’t bother the borrower’s family in the event of one’s death because the life insurance will take care of the financial obligations. Also, the remainder of the life insurance amount after paying off the money lender will be passed on to the beneficiaries such as a wife or kids. Basically, life insurance for SBA loans is a sure-fire way to protect all the parties involved in the trade in case the borrower checks out early.
Often referred as term life insurance, the life insurance amount to be drawn over here should ideally be for the full amount of the SBA loan. Also, the lender needs to be labeled as the primary beneficiary of the funds. The typical term coverage is anywhere between 5 to 10 years, usually purchased with 1-year renewable terms. Generally speaking, the shorter the insurance term, the lower the cost. To clear any leftover confusion, the policy won’t cover the money lender if you default on the repayment terms. The money lender will benefit only from your death. In other words, the term life insurance policy can be seen as a ‘death benefit’ policy.
Timeline for Life Insurance for SBA Loans
Depending on how fast you need the business loan, you will have to choose the right type of life insurance policy here. For instance, if you need the money quickly, you are better off choosing a non medical life insurance policy. This will speed up the process because you won’t have to go through the medical exam. So, you will save yourself at least a few weeks’ worth of time. Remember, a no medical exam life insurance policy will carry a tad bit higher premium than a fully underwritten life insurance policy. Therefore, you will have to weigh the pros and cons before jumping into any kind of insurance underwriting.
If time is not a concern area, you can opt for a fully underwritten life insurance policy that requires a physical examination before approval. If you are deemed to be a physically fit person after the medical proceedings, your premium would most likely be the least expensive one. Not to forget the fact that you will be able to broaden your options exponentially by passing a medical test. As a secondary option, you can also consider getting a no-medical exam term policy to secure the loan, and then take a medical test so that you can later on replace the terms of the original policy with a lower premium attached to it. In this manner, you can get the loan at your deadline, while still keeping the cost low.
Also, you can drop the life insurance policy anytime by paying off the SBA loan. In most cases, you will be able to do so without bearing any penalty or extra charges. That being said, you can choose to retain the policy as well. Your best bet would be to reevaluate your insurance needs in coordination with our industry expert to see if your family members can still benefit from the policy in any way. Also, if you have developed any medical conditions along the way, any of our experienced insurance agents can help you with the best option. So, seeking expert consultation would prove to be a savvy thing to do as opposed to canceling the policy right off the bat.
Getting life insurance to obtain a business loan may not seem like an exciting journey, but most money lenders won’t sign a check without this necessary coverage. Also, if your business is worth starting, it’s worth protecting as well. As they say, “there are some problems in life that only insurance can solve”. So, if you are being asked to obtain a life insurance policy while applying for an SBA loan, we have many options available for you. We specialize in matching our members to the life insurance policy that works best for their situation. Better yet, we can get your insurance application processed sooner than any other agency, because we have the right products, to improve your chances of securing a business loan. So, don’t hesitate to contact us today. We are just a phone call away.