sba loan

Life Insurance for SBA Loans: The Ultimate Guide in 2023

What is SBA?

The Small Business Administration (SBA) is a United States government agency that provides support to entrepreneurs and small businesses. It is located in Washington, D.C.

This includes providing loans, helping businesses find resources and training, and giving advice on starting and growing a business.

How Does The General Process Of Applying For an SBA Loan Look Like?

The process of applying for an SBA loan is not as difficult as one might think.

The first step is to contact your local SBA office and schedule an appointment with a loan specialist.

At the appointment, you will be asked to provide some basic information about your business and the proposed loan.

The loan specialist will then help you complete the required application for your specific type of loan.

The application process usually takes about two weeks, and the SBA will notify you of its decision within 30 days.

If your application is approved, the SBA will work with you to find a lender who can provide you with the money you need.

Why Would I Need Life Insurance For an SBA Loan?

If you’re taking out an SBA loan, it’s a good idea to have life insurance. Here are three reasons why: 

1. If something happens to you, your family can continue making loan payments. 

2. The SBA may require you to have life insurance as a condition of the loan. 

3. If something happens to the business, a life insurance policy can help pay off the loan.

How Does SBA Work?

SBA, or the Small Business Administration, is a government organization that helps small businesses grow and succeed.

One of the main ways it does this is by guaranteeing loans to small businesses.

This means that if a small business can’t repay its loan, the government will step in and pay the lender back.

This makes it easier for small businesses to get the money they need to start and grow their businesses. 

The SBA offers counseling and training services to help small businesses be successful.

The SBA works with a variety of partners to deliver its services, including private lenders, state and local governments, and nonprofit organizations.

What is a Collateral Assignment?

A collateral assignment is a transfer of an ownership interest in a specific property to secure a debt or other obligation. 

The assignor, or person transferring the property, is called the “grantor.” The person receiving the property is called the “grantee.” 

The “grantee” has possession and use of the property, but the “grantor” continues to own it.

In a collateral assignment, the “grantor” transfers title to the “grantee” only if the debt is not paid.

What Type of Life Insurance Should I Buy?

life insurance policy

When it comes to life insurance, there are a few different types of life insurance to choose from. Deciding which type of life insurance is right for you can be confusing.

Listed below are the most common policies with the pros and cons to help you make a better decision.

No Medical Exam Simplified Issue Policies

Simplified-issue life insurance policies are very affordable, and they offer a lot of different coverage options.

You can choose from a variety of death benefit amounts, and you can also select from a range of term lengths.

The Pros – When Using No Exam Companies

  • Applications are electronic, simple, quick & easy.
  • Quick approvals within a few days or even hours if you are lucky!
  • A collateral assignment is completed after the policy is issued and within a 24-48 turnaround time.
  • Cancel at any time after your loan is paid in full.

The Cons- When Using No Exam Company

  • Higher insurance rates.
  • Only questions are asked.
  • If you have health conditions you can be turndown – talk to an independent life insurance expert!
  • No underwriting- they only run MIB, RX report, and DVM report for a decision.

Term Life Insurance

Term insurance is a popular type of life insurance that provides coverage for a specific period of time or length of term, such as 10, 15, 20, 25, or 30 years.

Term life insurance policies are less expensive than permanent policies. They tend to be the most affordable and best solution for someone purchasing an insurance policy for an SBA loan.

Typically, term life insurance death benefits have a minimum amount of $100,000 and go all the way up into the millions depending on the borrower’s small business needs. The life insurance premiums are based on the age and health of the policyholder. Most term life policies can be converted to permanent policies without having to go through an exam and underwriting again.

As we have learned above, term life policies are less expensive than permanent life policies. Term life can provide a death benefit that can be used to pay funeral or other final expenses.

The Pros – Term Insurance

  • Lower insurance rates with an exam.
  • Many insurance carriers to shop from.
  • The best type of insurance to buy for the period of your SBA loan is 15, 20, or 30 years.
  • Cancel at any time after your loan is paid off.

 The Con’s- Term Insurance

  • The application process can be a pain.
  • Required to take a mini-physical examination and questionnaires.
  • Lengthy Underwriting timeframe (4-6 weeks or even longer).

How to Shop for SBA Loan Life Insurance?

The Pros – Term Insurance

  • Lower insurance rates with an exam.
  • Many insurance carriers to shop from.
  • The best type of insurance to buy for the period of your SBA loan is 15, 20, or 30 years.
  • Cancel at any time after your loan is paid off.

 The Con’s- Term Insurance

  • The application process can be a pain.
  • Required to take a mini-physical examination and questionnaires.
  • Lengthy Underwriting timeframe (4-6 weeks or even longer).

How to Shop for SBA Loan Life Insurance?

When you take out an SBA loan, the government is essentially guaranteeing a portion of the money you borrow.

To ensure that the government is protected in case of your unexpected death, most lenders will require you to have or to purchase a life insurance policy on yourself.  

There are a few different ways to go about shopping for life insurance when you have an SBA loan.

Option 1: Work with the lender that gave you the loan. They will likely have a preferred provider that they work with and can help you get set up with a policy. Keep in mind, that this option might not be in your best interest.

Option 2: Shopping around on your own.

Option 3: Using an independent life insurance agent.

When you are shopping for life insurance, it is important to know the different types of policies that are available to you within the insurance market.

An SBA loan life insurance policy is a type of group policy that is offered to business owners who have taken out an SBA loan.

This type of policy is designed to provide coverage in the event of death or disability.

Things you need to consider when shopping for an SBA loan life insurance policy are:

  • First, you need to decide how much coverage you need. The amount of coverage you need will depend on your circumstances.
  • You will need to make sure that the policy provides adequate protection in case of your untimely death or if you were to become disabled.
  • The cost of purchasing a life insurance policy! It’s very important to make sure you compare the cost of different policies before making a final decision on your coverage.
  • You should also be aware of any exclusions or limitations that may be included in the policy.

Work with an Independent Life Insurance Agent- They Are The Pros!

When it comes to purchasing life insurance, there are a few things you should take into consideration. How much coverage do you need? What are the rates? What kind of policy should you get?

These are important questions, and you may not have all the answers. That’s where an independent life insurance agent comes in.

An agent can help you determine how much coverage you need and find the best rates for you.

An independent agent works with a variety of insurance companies so that they can find the right policy for your needs and budget.

Plus, they’re there to help you every step of the way, from choosing a policy to filing a claim.

You may be asking yourself if working with an independent life insurance agent is the right choice for you.

Here are a few reasons why working with an agent who is not tied to any one company might be the best decision you could make:

  • An independent life insurance agent can offer you unbiased advice. They are not affiliated with just one life insurance company. The agent can then recommend the best policy for their client’s needs without bias toward one company. 
  • An independent life insurance agent can help you find the best rates. Independent agents who work with multiple insurance companies have access to more rates than captive agents who only work with one company.
  • An independent life insurance agent can help you understand your policy. Independent agents are knowledgeable about all types of life products with different insurance companies and can help you choose the right policy for your needs.

How To Compare Life Insurance Rates?

When you are shopping for life insurance, it is important for you to compare rates.

Insurance rates can vary from company to company, so comparing as many rates as possible is important.

You can use an online tool to compare rates, or you can call different companies and ask for quotes.

It is also important to consider what type of life insurance policy you need. There are different types of policies, each with benefits and drawbacks.

You should consider how much coverage you need and what type of policy will best meet your needs.

Once you have narrowed down your choices, it is important to compare the features of each policy.

Make sure you understand what the policy covers and what it doesn’t cover. You should also find out how much the premiums will be and how often they will be paid.

FAQ’s About Life Insurance and SBA Loans

Frequently Asked Questions

What are the necessary steps to take to get an SBA loan?

  • Choose the best loan program for your business.
  • Choose a lender.
  • Fill out your application.
  • Receive a “Letter of Intent”.
  • Wait several weeks during the underwriting process.
  • Receive a decision.
  • Secure a life insurance policy.
  • Make collateral assignment.

The Necessary Steps To Take To Get Life Insurance?

  • Shop around for the best rates.
  • Fill out your application.
  • Take an exam.
  • Receive and accept a decision.
  • Request collateral assignment documents.

The Best Tips To Buy Life Insurance for Your SBA Loan?

  • Choose term life insurance.
  • Look for providers that offer no exam policies.
  • Consider return of premium plans.
  • Try working with a life insurance agent or broker.

What if I Already Have a Life Insurance Policy?

If you already own life insurance coverage, you can use your current policy as collateral for an SBA loan.

Like a new policy, it will need to be enough to cover the total SBA loan amount and will need to have a policy term that lasts at least as long as the repayment terms of your loan.

You can easily contact your current life insurance provider to request collateral assignment documents.


Life insurance is an important part of securing an SBA loan. It can provide peace of mind for the business owner and protect the lender’s investment. 

When choosing a life insurance policy, it is important to find one that meets the needs of the business.