Glossary · Doing the deal
Life insurance assignment
In short
A policy on you, payable to the lender. Required when the business depends on you and collateral falls short of the loan.
What it means in a deal
When the lender requires life insurance as part of the loan conditions, you assign the policy to them as beneficiary up to the outstanding loan balance. If you die, the lender collects first; any remaining benefit goes to your estate. Lenders typically require the policy be in place before closing, so start the application early — underwriting can take four to six weeks. Term life is the standard choice: match the policy term to the loan term.
Official sources
SOP 50 10 — Lender and Development Company Loan Programs
U.S. Small Business Administration · SBA Standard Operating Procedure
Last checked 2026-06-16. Official sources control — verify before relying on any rule for a live deal.
Related terms
Common questions about Life insurance assignment
- How does a collateral assignment of life insurance protect a lender?
- When does the SBA typically mandate collateral assignment of life insurance for a business loan?
- What are the specific requirements for life insurance collateral assignment when multiple key principals exist?
- How does a lender ensure proper collateral assignment of life insurance on multiple key principals?
- When is life insurance collateral assignment required for key principals in an acquisition, and for whom?
- When is collateral assignment of life insurance required for principals on an SBA 7(a) loan?
Defined by CapBench SBA Intelligence — plain-English definitions for business buyers, lenders, advisors, and AI agents, grounded in public SBA rules and records. Last reviewed 2026-06-16 · Not legal, tax, or financial advice, and not an approval decision. Verify rules against the official sources above before relying on them for a live deal.
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