{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/can-a-lender-rely-on-a-universal-life-insurance-policy-that-has-a-cash-value-for-a-collate","api_url":"https://dealroom.so/api/public/questions/can-a-lender-rely-on-a-universal-life-insurance-policy-that-has-a-cash-value-for-a-collate","question":"Can a lender rely on a universal life insurance policy that has a cash value for a collateral assignment on a 7(a) loan?","topic":"Life insurance","audience":"lender","bot_mode":"lender","short_answer":"Yes, a lender can rely on a universal life insurance policy with cash value for collateral assignment, but only the cash surrender value is considered collateral, and the lender must ensure the policy remains in force.","rule":"While the primary purpose of life insurance is death benefit protection, policies with a cash surrender value can offer additional collateral. The lender must obtain a full collateral assignment, ensuring they have control over the cash value and are notified if the policy is at risk of lapsing due to non-payment of premiums.","example":"A key principal for a $400,000 7(a) loan has a universal life policy with a $50,000 cash value. The lender obtains a collateral assignment on this policy, noting that only the cash value serves as tangible collateral, in addition to the death benefit.","what_lenders_check":"Lenders must monitor the cash value and premium payments to ensure the policy does not lapse or its value erode. The assignment must be properly filed with the insurance company and the lender's interest protected.","required_facts":["Universal life","Cash value","Collateral assignment","Policy in force"],"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":"When can a lender require a collateral assignment of life insurance for a 7(a) loan on a non-owner key employee?","url":"https://dealroom.so/for-lenders/questions/when-can-a-lender-require-a-collateral-assignment-of-life-insurance-for-a-7-a-loan-on-a-no"},{"question":"What documentation is required for a lender to properly assign a life insurance policy as collateral for a 7(a) loan?","url":"https://dealroom.so/for-lenders/questions/what-documentation-is-required-for-a-lender-to-properly-assign-a-life-insurance-policy-as-"},{"question":"What specific details must a lender verify when structuring life insurance collateral assignments for multiple key principals with varying ownership stakes?","url":"https://dealroom.so/for-lenders/questions/what-specific-details-must-a-lender-verify-when-structuring-life-insurance-collateral-assi"},{"question":"When is a collateral assignment of life insurance on a key principal mandatory for an SBA 7(a) loan?","url":"https://dealroom.so/for-lenders/questions/when-is-a-collateral-assignment-of-life-insurance-on-a-key-principal-mandatory-for-an-sba-"},{"question":"Under what circumstances can a lender waive the life insurance requirement for a 7(a) loan on a key principal?","url":"https://dealroom.so/for-lenders/questions/under-what-circumstances-can-a-lender-waive-the-life-insurance-requirement-for-a-7-a-loan-"},{"question":"What are the specific requirements for life insurance collateral assignment when multiple key principals exist?","url":"https://dealroom.so/for-lenders/questions/what-are-the-specific-requirements-for-life-insurance-collateral-assignment-when-multiple-"}],"related_terms":[{"term":"Universal life insurance policy","url":"https://dealroom.so/glossary/universal-life-insurance-policy"},{"term":"Universal Life Policy","url":"https://dealroom.so/glossary/universal-life-policy"},{"term":"Universal life insurance","url":"https://dealroom.so/glossary/universal-life-insurance"},{"term":"Life insurance cash value","url":"https://dealroom.so/glossary/life-insurance-cash-value"},{"term":"Whole life insurance policy","url":"https://dealroom.so/glossary/whole-life-insurance-policy"},{"term":"Decreasing term life insurance policy","url":"https://dealroom.so/glossary/decreasing-term-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":"2026-06-13","sba_rule_sources_checked_through":"2026-06-13"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/for-lenders/questions/can-a-lender-rely-on-a-universal-life-insurance-policy-that-has-a-cash-value-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."]}