Collateral assignment of life insurance

Definition

A policy on the buyer, assigned to the lender until the loan is repaid.

Why It Matters

SBA lenders routinely require this where a business depends on one person, which in a company this size is usually you. The policy is yours and so is the premium; what the assignment does is put the lender first in line for the death benefit, up to the balance outstanding. Two things are worth settling early. The amount is normally the loan rather than a round number somebody picks, and the timing matters because underwriting a policy takes weeks and is a common reason a closing slips.

In numbers: A $1.5M loan usually needs $1.5M of coverage assigned, and the premium on a healthy 40-year-old runs a few hundred dollars a month.