A collateral assignment is a process to get a loan by using life insurance as collateral. When we buy a life insurance policy, we generally do it because we want to protect our families and loved ones in the event of an untimely death. But not everyone realizes that life insurance can be used as collateral for a personal loan or even an SBA (Small Business Administration) loan. Life insurance can help cover the cost of an SBA loan in case anything would happen to you. Thus if the borrower passes away before paying back the loan then the lender gets the loan balance from the death benefit and if there is any amount remaining (after the loan balance has been paid off) then it will go to the beneficiaries.
A collateral assignment is especially helpful if you want to get approved for a loan quickly. By using life insurance as collateral, you’ll get approved for a loan more easily and likely with better terms than if you didn’t have any collateral at all. Life insurance offers peace of mind by providing financial security no matter what happens.
Life Insurance can be used as Collateral for a Loan
No matter what your financial situation, life insurance can be a valuable asset.
For example, if you have a life insurance policy worth $100,000 and you borrow $10,000 from a bank using it as collateral, the bank would want to make sure you reliably pay back the money. This means they would likely give you better terms than they would to someone who doesn’t have any collateral for their loan.
A lot of banks require that applicants get life insurance before they approve an SBA loan application. Life insurance can also help offset the interest rates on SBA loans if something happens to you and they need to pay off the balance early.
The Benefits of using Life Insurance as Collateral for a Loan
One of the benefits of using life insurance as collateral for a loan is that you’ll likely get approved for a loan more easily and with better terms than if you didn’t have any collateral. If you’ve ever tried to get a business loan and been denied, this may be the perfect solution. Another benefit of having your life insurance policy as collateral is it provides peace of mind for your loved ones. There’s no need to worry about how they’ll manage financially if something were to happen to you. You can rest assured that they’ll be taken care of through the life insurance policy.
Important things to consider with using Life Insurance as Collateral for a Loan
First of all, not every lender will accept this type of collateral. If you’re dealing with a smaller lender or credit union, they may not be able to offer this service. Thus it is always best to check with your bank or credit union. Second, if you cancel your policy after your loan is approved, the lender might demand repayment immediately or within 30 days at their discretion. Also, if the value of your policy changes while it’s being used as collateral for your loan, the lender will most likely adjust the terms of your contract accordingly.
Additionally, because you’re relying on this asset as collateral for your loan, the lender will likely want to know that it’s well protected. What does this mean? You’ll need to keep the policy in force and make payments on time so that you don’t risk losing it.
If a collateral assignment, using life insurance as collateral for a loan, sounds like something you’re interested we can find a policy that meets your needs. Call us at 248-362-1313 or fill out the form below.
