{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/are-there-specific-requirements-for-the-type-of-life-insurance-policy-needed-for-a-collate","api_url":"https://dealroom.so/api/public/questions/are-there-specific-requirements-for-the-type-of-life-insurance-policy-needed-for-a-collate","question":"Are there specific requirements for the type of life insurance policy needed for a collateral assignment on a key principal?","topic":"Collateral","audience":"borrower","bot_mode":"buyer","short_answer":"Yes, if life insurance is required as collateral, the policy must typically be a whole life or universal life policy with a cash surrender value, assigned to the lender.","rule":"Term life insurance policies, which lack a cash value, are generally not acceptable as collateral. The SBA requires a policy with a cash surrender value that can be assigned to the lender. The lender obtains a collateral assignment, allowing them to claim the cash value if needed, or proceeds upon the principal's death, up to the loan balance.","example":"If a key principal's life insurance is required, a whole life policy with a cash value of $50,000 could be collaterally assigned to the lender. If only a term life policy is available, the lender might require the borrower to purchase a whole life policy or provide other collateral.","what_lenders_check":"Lenders need to ensure the policy has a tangible value they can access. They verify the policy type, the cash surrender value, and that the collateral assignment is properly executed and recorded with the insurance company.","required_facts":["Life insurance","Collateral assignment","Key principal","Cash surrender value","Whole life/universal life"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","13 CFR Part 120 - Business Loans"],"official_sources":[{"title":"SOP 50 10 - Lender and Development Company Loan Programs","url":"https://www.sba.gov/sites/default/files/2025-05/SOP%2050%2010%208%20Technical%20Updates%20effective%206.1.2025.docx"},{"title":"13 CFR Part 120 - Business Loans","url":"https://www.ecfr.gov/current/title-13/chapter-I/part-120"}],"related_questions":[{"question":"What are the requirements for pledging inventory as collateral for an SBA 7(a) loan for a retail business acquisition?","url":"https://dealroom.so/sba-7a/questions/what-are-the-requirements-for-pledging-inventory-as-collateral-for-an-sba-7-a-loan-for-a-r"},{"question":"If the business assets are not enough, will the SBA require me to pledge my primary residence as collateral for a $700,000 loan?","url":"https://dealroom.so/sba-7a/questions/if-the-business-assets-are-not-enough-will-the-sba-require-me-to-pledge-my-primary-residen"},{"question":"Does an SBA 7(a) loan typically require collateral beyond the business assets?","url":"https://dealroom.so/sba-7a/questions/does-an-sba-7-a-loan-typically-require-collateral-beyond-the-business-assets"},{"question":"How does an SBA 7(a) loan handle intangible assets like intellectual property as collateral?","url":"https://dealroom.so/sba-7a/questions/how-does-an-sba-7-a-loan-handle-intangible-assets-like-intellectual-property-as-collateral"},{"question":"What types of assets can be used as collateral for an SBA 7(a) loan?","url":"https://dealroom.so/sba-7a/questions/what-types-of-assets-can-be-used-as-collateral-for-an-sba-7-a-loan"},{"question":"What if my personal residence is already mortgaged; can it still be used as collateral?","url":"https://dealroom.so/sba-7a/questions/what-if-my-personal-residence-is-already-mortgaged-can-it-still-be-used-as-collateral"}],"related_terms":[{"term":"Collateral Assignment of Life Insurance","url":"https://dealroom.so/glossary/collateral-assignment-of-life-insurance"},{"term":"Life Insurance Collateral Assignment","url":"https://dealroom.so/glossary/life-insurance-collateral-assignment"},{"term":"Life insurance assignment","url":"https://dealroom.so/glossary/life-insurance-assignment"},{"term":"Life insurance collateral","url":"https://dealroom.so/glossary/life-insurance-collateral"},{"term":"Assignment of policy","url":"https://dealroom.so/glossary/assignment-of-policy"},{"term":"Whole life insurance policy","url":"https://dealroom.so/glossary/whole-life-insurance-policy"}],"related_tools":[{"name":"SBA 7(a) payment & fee calculator","url":"https://dealroom.so/sba-7a/calculator"},{"name":"Find an active SBA 7(a) lender","url":"https://dealroom.so/lenders"}],"data_freshness":{"last_reviewed":"2026-06-14","sba_rule_sources_checked_through":"2026-06-14"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/sba-7a/questions/are-there-specific-requirements-for-the-type-of-life-insurance-policy-needed-for-a-collate","source_type":"DealRoom Q&A"},"caveats":["Grounded in the current SBA rulebook; verify against official sources before relying on it for a live deal.","Not legal, tax, or financial advice and not an approval decision."]}