{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/what-are-the-sba-s-specific-guidelines-for-acceptable-collateral-life-insurance-policies","api_url":"https://dealroom.so/api/public/questions/what-are-the-sba-s-specific-guidelines-for-acceptable-collateral-life-insurance-policies","question":"What are the SBA's specific guidelines for acceptable collateral life insurance policies?","topic":"Business life insurance & protection","audience":"borrower","bot_mode":"buyer","short_answer":"The SBA requires the policy to be 'collateral assigned' to the lender, ensuring the lender has a first claim to the death benefit up to the outstanding loan balance. The policy must be sufficient to cover the collateral shortfall.","rule":"SBA SOP 50 10 mandates that the lender be named as a 'collateral assignee' on the policy. This means the lender has a perfected security interest in the death benefit. The policy amount must be at least equal to the identified collateral shortfall or the portion of the loan that is unsecured by other assets.","example":"An SBA loan has a $100,000 collateral shortfall. The borrower secures a $100,000 term life policy. The lender is added to the policy via a collateral assignment form, which specifies the lender's claim on the death benefit.","what_lenders_check":"Lenders carefully verify that the collateral assignment is properly executed and recorded with the insurance company, and that the policy remains in force for the loan's duration.","required_facts":["Collateral assigned","Lender first claim","Covers collateral shortfall","SOP 50 10","Perfected security interest"],"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/document/sop-50-10-lender-development-company-loan-programs"},{"title":"13 CFR Part 120 — Business Loans","url":"https://www.ecfr.gov/current/title-13/chapter-I/part-120"}],"related_questions":[{"question":"What is key-person life insurance and why is it crucial for small businesses?","url":"https://dealroom.so/sba-7a/questions/what-is-key-person-life-insurance-and-why-is-it-crucial-for-small-businesses"},{"question":"Who should a business identify and insure as a key person?","url":"https://dealroom.so/sba-7a/questions/who-should-a-business-identify-and-insure-as-a-key-person"},{"question":"What is the typical amount of key-person life insurance coverage needed?","url":"https://dealroom.so/sba-7a/questions/what-is-the-typical-amount-of-key-person-life-insurance-coverage-needed"},{"question":"Who owns and is the beneficiary of a key-person life insurance policy?","url":"https://dealroom.so/sba-7a/questions/who-owns-and-is-the-beneficiary-of-a-key-person-life-insurance-policy"},{"question":"What are the tax implications of key-person life insurance premiums and benefits?","url":"https://dealroom.so/sba-7a/questions/what-are-the-tax-implications-of-key-person-life-insurance-premiums-and-benefits"},{"question":"Why would a buyer require life insurance on a seller during business acquisition?","url":"https://dealroom.so/sba-7a/questions/why-would-a-buyer-require-life-insurance-on-a-seller-during-business-acquisition"}],"related_terms":[{"term":"Life insurance collateral","url":"https://dealroom.so/glossary/life-insurance-collateral"},{"term":"Life Insurance Collateral Assignment","url":"https://dealroom.so/glossary/life-insurance-collateral-assignment"},{"term":"SBA-Mandated Life Insurance","url":"https://dealroom.so/glossary/sba-mandated-life-insurance"},{"term":"Life insurance","url":"https://dealroom.so/glossary/life-insurance"},{"term":"Collateral Assignment of Life Insurance","url":"https://dealroom.so/glossary/collateral-assignment-of-life-insurance"},{"term":"Universal life insurance","url":"https://dealroom.so/glossary/universal-life-insurance"}],"related_tools":[{"name":"Life insurance coverage estimator","url":"https://dealroom.so/seller-life-insurance#ins-estimator"},{"name":"Request insurance quotes","url":"https://dealroom.so/seller-life-insurance#ins-quote"}],"data_freshness":{"last_reviewed":"2026-06-15","sba_rule_sources_checked_through":"2026-06-15"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/sba-7a/questions/what-are-the-sba-s-specific-guidelines-for-acceptable-collateral-life-insurance-policies","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."]}