SBA 7(a) Q&A
Short answer
A buyer might require life insurance on a selling owner during a transition period to mitigate the risk of financial loss if the seller, whose expertise is crucial for business continuity, dies before the transition is complete.
During an acquisition, a seller often remains involved for a period to transfer knowledge, client relationships, or specific operational skills. The seller's untimely death during this critical phase could jeopardize the acquired business's stability and profitability for the buyer.
A buyer purchases a consulting firm, and the seller agrees to a one-year consulting contract to ensure client retention. The buyer might take out a $500,000 term life insurance policy on the seller for that year, with the buyer as beneficiary, to cover potential lost revenue and client departures if the seller dies.
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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