Last updated: July 20th, 2022
Reviewed by
Grant Desselle
Licensed Insurance Agent
Table of Contents
Lenders want to be sure their loan will be paid back in the event of your death. They do that by having you buy life insurance that assigns the death benefit to them. But loan applicants, in their scramble to form a business plan and arrange financing, typically fail to notice the life insurance requirement until closing time is right around the corner.
If you’re healthy, getting the insurance is usually no problem. Time is the problem.
To solve the problem, you need an agent who knows the market and can quickly decide which companies to turn to in order to fulfill the requirements of a particular lender.
The amount of insurance required depends on the lender, as well as the size of the loan. Some loans require a matching amount of insurance. Small Business Administration (SBA) loans are subject to negotiation on this point.
Perhaps one reason business owners are surprised by the life insurance requirement is that SBA loans are already guaranteed by the federal government. Nevertheless, lenders often require life insurance as an additional protection.
As lending requirements have become stricter, obtaining life insurance for a loan over $250,000 has become more challenging. But if you’re healthy, it can be done.
Policies vary considerably in the amount of coverage they provide and the time it takes to issue them.
Healthy loan applicants usually choose no medical exam insurance because it’s much faster to get.
The highest amount of no medical exam life insurance you can get is $500,000. It’s available through Sagicor, who can issue a policy in 24 hours. North American Life Insurance Company now offers policies up to $500,000 that are issued instantly. Assurity offers $350,000 in coverage for every state except New York, but its underwriting time is longer. Fidelity and American National can provide up to $250,000 of coverage and issue a policy within a week.
If one policy doesn’t offer enough coverage, lenders allow you to combine multiple policies.
There’s one more important factor to consider. After your policy is issued, you still need to make an assignment to the lender, which takes 3 to 7 business days. Agents should budget for this in advance and notify clients as soon as their policy is issued, have them fill out the lender’s assignment form, and return it to the lender the same day. Don’t forget about this form — it’s a factor that some agents neglect in calculating the timeline for closing a loan.
As long as you meet the deadlines, getting life insurance to close a small business loan is pretty simple — if you’re in good health.
What if you have a serious medical condition, such as high blood pressure, diabetes, or heart problems?
Although it’s tougher and more expensive, it’s still possible to get the coverage you need.
In all the years we’ve been in business, rarely do our agents have to turn away a client because they couldn’t get the client the coverage he or she needed.
It’s part juggling act and part jigsaw puzzle, involving multiple policies, requirements, and deadlines. It’s a matter of knowing the client’s health situation, identifying the companies that will work for the client, keeping an eye on deadlines, and working with the client to obtain a balance of speed and cost.
Coverage for people with serious medical conditions has changed as medicine has found ways to help people manage or even ward off problems that were once routinely considered life-threatening.
In the past, if you were taking medication for high blood pressure, high cholesterol, or diabetes, you often couldn’t get a policy. But over time, as medications have been shown to reduce mortality, insurers have changed their tune. Being on medication won’t necessarily disqualify you. But, if you’re on medication for more than one condition, it’s tougher and more expensive to get coverage.
In the face of increased industry competition, some insurance companies have opened their doors too wide. At times they take in too many people, don’t add enough filters, and don’t ask enough questions. This type of mismanagement in risk analysis can cause undue financial burdens, which can cause an insurance company to go out of business.
Another change is the abundance of information now available on the internet. One agent had a client who applied for a no medical exam policy and said he was five-foot-ten and weighed 215 pounds. But, his driver’s license told a different story: it said he was five-foot-seven and weighed 265 pounds.
Not only is honesty the best policy — it’s also the only way to get a policy.
If you need life insurance to close a small business loan, whether you’re the picture of health or have serious medical problems, True Blue can help. Honesty is our policy, too, and that’s why we share information about specific companies and policies that you won’t find on other sites.
