SBA 7(a) Q&A
Short answer
A buyer might require life insurance on a seller to protect against financial losses if the seller dies prematurely during a crucial transition period or while a seller note is outstanding.
During an acquisition, a seller often remains involved for a period to ensure a smooth transition, or the buyer may owe a portion of the purchase price via a seller note. The seller's untimely death could disrupt operations, alienate customers, or make collecting on the note difficult if the business falters.
A buyer purchases a business with a $500,000 seller note. The buyer insists on a $500,000 term life policy on the seller for the note's term, ensuring funds to repay the note if the seller dies and the business struggles.
Last reviewed 2026-06-15 · SBA sources checked through 2026-06-15. DealRoom analysis of business life-insurance and SBA collateral-insurance practice (SOP 50 10 8). Not insurance, legal, or tax advice. 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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This page answers “Why would a buyer require life insurance on a seller during business acquisition?” for SBA 7(a) business buyers — a short answer, the detail, and official sources — from DealRoom.so SBA Intelligence. It is general information, not legal, tax, or financial advice, and DealRoom is not a lender.
Source: DealRoom.so SBA Intelligence, based on public SBA, lender, franchise, FDIC, and related records. DealRoom is not a lender and does not guarantee financing.
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