For SBA lenders
Short answer
A lender ensures proper maintenance by obtaining an assignment of policy rights, requiring proof of premium payments, and periodically verifying policy status directly with the insurance carrier.
For key principals, life insurance may be required as collateral. The lender must obtain an unconditional assignment of the policy, be named as the sole assignee, and confirm that the policy amount is sufficient to cover the guaranteed portion of the loan. Ongoing maintenance includes requiring the borrower to provide proof of premium payments (or paying premiums directly from an escrow account) and conducting periodic checks with the insurer for policy lapses or changes.
A lender receives a life insurance policy assignment. Annually, the lender requests proof of premium payment from the borrower and also sends an inquiry to the insurance company to confirm the policy is in force, the assigned amount is correct, and no changes have occurred.
Insider move
Failure to properly secure and maintain life insurance assignments can significantly impair collateral, leading to a guaranty repair or denial if a key principal dies and the policy proceeds are unavailable. Diligent monitoring is essential.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
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