{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/is-a-decreasing-term-life-insurance-policy-acceptable-for-the-sba-s-life-insurance-require","api_url":"https://dealroom.so/api/public/questions/is-a-decreasing-term-life-insurance-policy-acceptable-for-the-sba-s-life-insurance-require","question":"Is a decreasing term life insurance policy acceptable for the SBA's life insurance requirement on a 7(a) loan?","topic":"Life Insurance","audience":"lender","bot_mode":"lender","short_answer":"Yes, a decreasing term life insurance policy can be acceptable if its coverage amount remains sufficient to protect the outstanding loan balance for a reasonable period, typically for the initial, higher-risk years.","rule":"While whole life or level term policies are often preferred for their consistent coverage, a decreasing term policy may be allowed. The key is that the death benefit must adequately cover the outstanding loan balance, particularly during the early years when the principal is highest and business stability may be less certain. The lender must continuously monitor the coverage.","example":"For a $1,000,000 7(a) loan, a borrower obtains a decreasing term policy. The lender reviews the policy's declining benefit schedule to ensure it always exceeds the projected outstanding loan balance for at least the first five to seven years, or as determined prudent.","what_lenders_check":"Lenders must monitor the decreasing coverage against the declining loan balance. If the coverage falls below the outstanding balance too quickly or too significantly, the lender may need to require additional insurance or a different policy type to protect the SBA guaranty.","required_facts":["Decreasing term policy","Coverage amount","Outstanding balance","Loan protection","Monitoring requirement"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","13 CFR Part 120 - Business Loans","7(a) Loan Program Terms, Conditions, and Eligibility"],"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"},{"title":"7(a) Loan Program Terms, Conditions, and Eligibility","url":"https://www.sba.gov/partners/lenders/7a-loan-program/terms-conditions-eligibility"}],"related_questions":[{"question":"How does a lender ensure proper collateral assignment of life insurance on multiple key principals?","url":"https://dealroom.so/for-lenders/questions/how-does-a-lender-ensure-proper-collateral-assignment-of-life-insurance-on-multiple-key-pr"},{"question":"How does a lender ensure sufficient life insurance coverage for multiple key principals with varying ownership stakes?","url":"https://dealroom.so/for-lenders/questions/how-does-a-lender-ensure-sufficient-life-insurance-coverage-for-multiple-key-principals-wi"},{"question":"Under what specific circumstances can a lender waive the life insurance requirement for a key principal on a 7(a) loan?","url":"https://dealroom.so/for-lenders/questions/under-what-specific-circumstances-can-a-lender-waive-the-life-insurance-requirement-for-a-"},{"question":"How should a lender structure the beneficiary and assignment of life insurance on a key principal for a 7(a) loan?","url":"https://dealroom.so/for-lenders/questions/how-should-a-lender-structure-the-beneficiary-and-assignment-of-life-insurance-on-a-key-pr"},{"question":"When is life insurance required as collateral for key principals with less than 20% ownership in a 7(a) loan?","url":"https://dealroom.so/for-lenders/questions/when-is-life-insurance-required-as-collateral-for-key-principals-with-less-than-20-ownersh"},{"question":"What are the specific requirements for naming the lender as the loss payee on a life insurance policy collateral assignment?","url":"https://dealroom.so/for-lenders/questions/what-are-the-specific-requirements-for-naming-the-lender-as-the-loss-payee-on-a-life-insur"}],"related_terms":[{"term":"Decreasing term life insurance policy","url":"https://dealroom.so/glossary/decreasing-term-life-insurance-policy"},{"term":"Life insurance requirement","url":"https://dealroom.so/glossary/life-insurance-requirement"},{"term":"Term life insurance","url":"https://dealroom.so/glossary/term-life-insurance"},{"term":"Whole life insurance policy","url":"https://dealroom.so/glossary/whole-life-insurance-policy"},{"term":"Universal life insurance policy","url":"https://dealroom.so/glossary/universal-life-insurance-policy"},{"term":"SBA-Mandated Life Insurance","url":"https://dealroom.so/glossary/sba-mandated-life-insurance"}],"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/is-a-decreasing-term-life-insurance-policy-acceptable-for-the-sba-s-life-insurance-require","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."]}