Are you in the process of buying a business and getting an SBA loan to fund the purchase? If so, your loan officer may have informed you that you need to secure life insurance as collateral. So, you may be wondering how to get life insurance quickly to close an SBA loan.
Life insurance as collateral provides the lender protection on the loan should you pass away before it’s paid off. It’s not always a requirement for an SBA loan, if for instance you have other assets that can secure the loan. In a perfect world, you’ll be informed early in the underwriting process if this is a loan requirement. In reality, however, you’ve probably been made aware of this late in the game.
You’re now left scrambling to get a life insurance policy in place in short order to satisfy loan underwriting. Not to mention making your contracted closing date on the purchase of the business. The problem is that obtaining life insurance can often be a time-consuming process. In some cases it can take 4-6 weeks between the time you apply for a policy and when it’s placed in force.
Let’s discuss options if you’re under the gun to get a policy quickly!
Time is of the essence
When someone needs coverage quickly, I look to specific insurance carriers that I know offer fast underwriting turnarounds. Often this means a no-medical exam insurance policy, as opposed to a fully underwritten one. You can shave weeks off the process by not having to go through a medical exam. This is where a nurse comes to your home or office to check your vitals, measure your height & weight, take blood & urine samples and complete a detailed questionnaire.
You’re looking at 5-7 days (at minimum) from the date we submit your application before your medical exam can be scheduled. Once you’ve had your exam, it can easily take another week before we receive the test results. That’s over 2 weeks before the insurance company’s underwriting department even starts reviewing your application.
With a no-medical exam policy, the insurance company’s underwriting department can get to work on your application almost immediately. In fact, some of the carriers I work with offer automated underwriting that can provide a response within just days, or even minutes in some cases. This has proven to be a life-saver for my clients who need to get life insurance quickly for an SBA loan.
Not everyone is a candidate for a no-medical exam policy, however. We can determine if you are during a free phone consultation. Email works too, but I’ve found it to be much more efficient to have a live conversation and get everything we can answered during that call.
If we discover that you’re not a candidate for a no-medical life insurance policy, we have other options. Many of the fully underwritten carriers I work with will expedite the process, but we’ll have to do a little extra leg work. Obtaining your own medical records and responding quickly to any questions during the underwriting process goes a long way.
What type of insurance policy should I get for an SBA loan?
A term life policy is going to be your most affordable option to satisfy the requirements of your SBA loan. You can opt for a term length that is equal to the length of the loan or longer. You may have good reason to go with a longer term, depending on your specific situation. A longer term would provide coverage and protection for your family beyond the terms of the business loan.
Also, your premium rates will be lower now than they will be 10/15/20 years in the future. Life insurance rates increase as you age and your health may not be as good down the road. For those reasons, it’s often wise to lock in a lower rate for next 20-30 years.
You can also use permanent life insurance, such as universal life or whole life, to secure an SBA loan. More on this in the section on collateral assignment below.
What is collateral Assignment?
You will be granting the lender what’s known as collateral assignment as means of securing your SBA loan. It’s a conditional assignment giving the lender first right to your insurance policy’s death benefit. It’s written in a way that the lender can only recover the balance of the loan if you were to pass away. Your primary beneficiary(ies) is entitled to any remaining benefit amount. Your primary beneficiary(ies) can be your spouse, family member(s) or any other person(s) of your choosing.
If a permanent life insurance policy, such a whole or universal life, is used to secure the loan through collateral assignment, the lender can access any cash value available in the policy to cover the loan should you default.
The portion of the death benefit that your spouse or other named beneficiary will be entitled to will increase over time as the balance on your SBA loan gets smaller. This is one reason why you may opt for a term that’s longer than the loan. In other words, the policy will continue to provide protection for a loved one after the loan is paid off. It ends up serving a dual purpose – securing the loan and protecting a loved-one.
How do I get started?
If you need to get life insurance quickly for an SBA loan, send me an email, give me a call at 512-922-1273 or use any of the quote forms on this site to start the conversation. During a free consult, I’ll gather information about your health and lifestyle. That allows me to pre-qualify you so that I can look at the right insurance policies. That means carriers that will look at your application in the most favorable light. Your unique level of risk will be considered differently against each insurance company’s underwriting guidelines. You’ll improve your odds by applying with the company who’s the best fit for your situation.
Applying with the wrong company can result in a declined application if you have certain health conditions or avocations. Not only is that a huge waste of time, but you will now have a declined application on record with the medical information bureau (MIB), along with the reason for that decision. The MIB is used by insurance companies to report any findings about an applicant’s health, driving record, hazardous avocations. Having a declined application in your MIB record may cause the next insurance company to also decline your application, or at the very least look at it under the microscope.
My ultimate goal as an independent life insurance broker is to help my clients obtain the right coverage. Not only at the best price available, but with the appropriate insurance company for their unique situation and level of risk. I will never suggest that you apply for the cheapest option if I know that for one reason or another you will not qualify for that specific insurance policy.
Life insurance is by no means a one size fits all purchase. Reach out today and let’s discuss your options!
Life Insurance Broker