Getting Life Insurance for a Business Loan
There are numerous reasons why you may want to consider getting term or permanent life insurance. One of the most common reasons in the business world is that you may need this as collateral to obtain a business loan. Read on to learn more about business loans and how this can impact you. Qualifying for a business loan is never necessarily easy.
Why Life Insurance is Needed for Business Loans
Sometimes banks are concerned about taking risks until they can ensure that their investment in the form of a loan is protected if you are unable to pay or default on what you owe or if you pass away before the loan is paid back.
Loan collateral business life insurance can help you accomplish the goal of giving the bank greater confidence about getting paid back their loan. It gives them an assurance that you are unlikely to default on your payments. You are the insured individual and you might also be the owner on a policy if you are obtaining life insurance for a business loan.
How Does the Life Insurance Policy Work?
The premium is paid by you and the bank or your lending institution stays as the primary beneficiary as long as the loan is outstanding. If you decide to pursue this type of business loan life insurance, you will need to sign a collateral assignment to give the bank the authority to receive the policy’s death benefit so long as your loan is in effect. In the event that the amount paid out to the bank if you were to pass away, is higher than the actual remaining balance on a loan, your secondary beneficiary, such as a spouse or a business partner will be the one to receive the difference after the primary beneficiary receives that payout. There are several different things you can do to ensure that you get the right policy for a business loan.
How to Get Life Insurance Quickly for a Business Loan
One of the most important things you can do is to get a life insurance policy that doesn’t require a medical exam, as these are typically more convenient to receive and are more easily approved quickly. You also need to let your life insurance agent or broker know as soon as possible that you need the policy for loan collateral. This allows him or her to put together any necessary extra paperwork.
How to Determine the Right Policy for a Business Loan
You also want to select a term life policy that is long enough to cover your business loan period. For example, if you’re using a business mortgage loan over 20 years, you would need a 20-year life insurance policy. You need to initiate the application process as soon as possible because the majority of lenders will not finalize a loan until you are able to indicate proof of policy. This is one more reason to use no medical exam life insurance policy since it tends to be approved much more quickly.