For SBA lenders
Short answer
A lender may waive the life insurance requirement on a key principal if the loan's repayment is not dependent on the principal's continued good health or if the principal is uninsurable due to age or health, and other mitigants are in place.
Life insurance is generally required on key principals whose loss would jeopardize the business's ability to repay the loan. However, a waiver may be considered if the principal's role is not critical to loan repayment, there are sufficient other mitigating factors (e.g., strong secondary management, significant collateral), or if credible evidence demonstrates the principal is uninsurable and no suitable alternative insurance product is available.
A 68-year-old borrower applies for a 7(a) loan. Medical records show they are uninsurable due to a pre-existing condition. The lender may waive the life insurance requirement if the business has a strong management team, a robust succession plan, and substantial collateral securing the loan, mitigating the risk of the principal's demise.
Insider move
Lenders must document the rationale for any waiver thoroughly. The primary concern is protecting the SBA's guaranty. If life insurance is waived, lenders must identify and document other credit factors or risk mitigants that adequately address the risk posed by the loss of the key principal.
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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