As any entrepreneur can relate, starting a small business is stressful.
There are so many different things that go into it from securing a loan, getting financing, hiring staff.
Running a small business can be very cumbersome and overwhelming. It’s no surprise that many small businesses fail in their first five years of opening their doors.
Another challenge the small business owner may face, especially if they’re trying to secure a loan for their business, is getting life insurance.
We’ve taken several calls here at our office from business owners who are in the loan process, and they’ve been dropped a bomb. They have to get life insurance coverage for the amount that the loan that they’re trying to obtain, and until they can actually get coverage, the bank will not approve the loan. Therein lies the predicament.
Traditional underwriting, although much less expensive, can take anywhere from four to six weeks, and sometimes longer, to get your decision. If you don’t have the time to apply for a cheap term policy, then you’re going to have to look at a simplified issue.
Fast Life Insurance to Secure a Loan
Simplified issues are policies that don’t require a medical exam, and as long as you can pass some basic health questions and then nothing comes up on your motor vehicle report, your MIB, or any of your doctor records, then you can get approved from anywhere from 48 hours to five to seven business days.
Carriers such as Fidelity Life, Assurity, and Americo are three of the top carriers that offer simplified life insurance policies, and once again these simplified issue policies require no medical exam. The only issue that may come up depends on the size of policy.
For example, Assurity will only offer you up to $350,000 of term coverage on a no medical exam policy, so if you need more than that, then you’re going to have to use more than one carrier to get you the full life insurance coverage that you need. Assuirty is just one example of a life insurance company, but the majority of companies all offer plans with relatively low values.
The other disadvantage to these simplified issue plans is the price. Because they don’t require a medical exam, there is more risk to the company, which means they have to offset their risk by charging you more every month. If your main goal is to get coverage quick, and money isn’t an issue, then these plans are the best option.
If you’re looking for a cheaper option and you don’t need the coverage immediately, then there are better options for your wallet. If you’re looking for the most affordable monthly rates for a life insurance policy, then a term life insurance plan will be your best bet. These plans only last for a predetermined time, normally between 5-30 years, and after that, they are no longer effective and you have to reapply for coverage. They come in just about any amount that you want to purchase in coverage and tend to be much cheaper than other life insurance options.
The biggest problem with these plans is how long they take to get approved. We mentioned earlier that the main disadvantage to traditional policies is the medical underwriting and the application process that you have to go through to get approved, which can take a long time.
Collateral Assignment For Your Business Loan
Once you get approved for the life insurance coverage that you need, make sure to let the carrier know why you’re taking life insurance. The reason is, is that you’re going to want to request a collateral assignment form that makes the lender the beneficiary on the policy. Almost all insurance carriers will offer the ability to assign collateral assignment; you just have to make sure that you make them aware.
Hopefully if you have a family involved, you’re taking out a larger policy that not only covers the amount of the loan, but also it leaves something left over for your family. In that case, with the collateral assignment form, you can list the lender for the beneficiary of the loan amount, and then the remaining portion can go to your beneficiaries.
Deciding How Much Life Insurance You Need
Obviously, you have to get a policy that is large enough to fulfill the amount of the loan, but if you don’t have any other coverage, you should get much more than that. Sit down with your loved ones and discuss all of the debt that you would leave behind.
When you’re looking for an insurance plan to secure your loan, consider getting extra coverage that would pay off any personal debt as well. Things like mortgages, car payments, credit card bills, and more can be extremely difficult for a grieving family to pay for.
Before you can buy a plan, you have to know the right amount of coverage. It’s a delicate balance in deciding how much to buy.
Getting the Best Rates
If you’re looking to get a life insurance policy to secure a loan, it’s important that you get the best rates possible for your coverage. Sure, the main purpose is to secure the loan, but it also provides security for you and your family if something awful was to happen.
Before you buy life insurance, get several quotes from different companies before you pick the best one. You’ll get different premiums from every company you contact.
If you wanted to get all of those quotes yourself, you could easily spend days on the phone talking to agents. Your time is valuable, don’t waste it comparing rates and answering the same question with dozens of agents. We can help you get the best quotes from the highest rated companies around.
The best piece of advice we can give you when getting a life insurance policy to secure a loan is to plan ahead and have all of the information you need ready. If you plan ahead well enough, you will give yourself enough time to apply for a traditional policy that can save you money every month. There is nothing wrong with a simplified issue policy, but it’s going to come with a price. As a business owner and entrepreneur, it’s vital to get the best products at an affordable price.
The Bottom Line – Life Insurance to Secure a Loan
Starting a small business comes with various challenges, including securing loans and financing. Life insurance can add to this complexity, as many business owners find out when required to obtain coverage to secure a loan. Traditional underwriting for life insurance can be time-consuming, taking weeks to get approved. Simplified issue policies, which don’t require a medical exam, offer faster approval, typically within 48 hours to a week. However, they tend to be more expensive. To secure a loan effectively with life insurance, determine the coverage needed, request a collateral assignment form, and consider extra coverage for personal debts. Getting multiple quotes ensures the best rates. Planning ahead allows time for more affordable traditional policies.