How to Structure Life Insurance for an SBA Loan
Why Life Insurance Is Required for SBA Loans and How to Structure It
When applying for an SBA loan, many business owners are surprised to learn that life insurance is often a requirement.
Lenders request this coverage to protect the loan. If the key person behind the business were to pass away, life insurance ensures the outstanding balance is repaid, reducing the lender’s financial risk.
To meet SBA loan requirements, the policy must include a collateral assignment, naming the lender as the primary beneficiary up to the amount of the outstanding loan.
Most lenders will also require that the coverage matches the loan amount and remains active for the loan’s term. For this reason, a properly structured term policy is often the most efficient and cost-effective solution, especially when paired with conversion flexibility for future needs.
While many agents default to showing a 20 or 30-year term, those options often come with significantly higher premiums that are unnecessary for most SBA structures. In many cases, a properly designed 10-year term provides the required lender protection at a far lower cost, freeing up cash flow for the business owner.
Case Study: A $3 Million Loan and a Strategic Insurance Plan
Let’s look at a real-world scenario.
A business owner seeking to acquire a large company needed a $3 million SBA loan. As the sole buyer, he was the key person driving the deal. Without him, there was no transaction. The lender required life insurance equal to the loan amount.
To meet the loan conditions without overextending the client financially, the policy was structured as a 10-year term. It was affordable, compliant, and tailored to fit the specifics of the deal.
A 20- or 30-year term would have cost the borrower thousands in unnecessary premiums.
Instead, we structured:
● A 10-year term to satisfy the SBA requirement at the lowest cost
● A carrier with a strong conversion option
● A plan for the client to improve weight and qualify for preferred rates within 12 months
This gave the lender the coverage they needed, while giving the client future flexibility at a fraction of the cost.
The Smart Play: Use a Term Policy
For SBA loan coverage, a 10-year term policy is often the smartest move. It’s the most affordable way to meet lender requirements without committing to unnecessary long-term premiums.
Why not use a 20-year term?
Because if you're thinking long-term, you’re better off exploring an indexed universal life (IUL) policy with permanent benefits and cash value. But when the focus is on qualifying for a loan, especially one expected to be paid off or refinanced within a decade, a 10-year term gets the job done efficiently and economically.
Why a 10-Year Term Is Often the Most Cost-Effective Choice
There is a big price difference between a 10-year and a 20-year term. For example:
$1,000,000 10-year term
Male age 45, non-smoker: approx. $29/month
$1,000,000 30-year term
Same client: approx. $147/month
That’s a 400% premium increase just to extend coverage far beyond the loan requirement.
Because SBA loans only require coverage for the lender’s risk period, a 10-year term often delivers the best combination of lender compliance and cost savings.
Disclaimer: Sample rates are for illustration only and vary by age, health, carrier, and underwriting class.
Built-in Flexibility: Use Convertible IUL Options
Here’s where smart structuring sets elite advisors apart.
We try to issue a 10-year term policy that’s convertible into a high-performing IUL policy without additional medical underwriting. This is critical.
Life happens, businesses grow, exit strategies evolve, and insurance needs shift. You must have the flexibility to pivot without facing the obstacles of re-qualification.
A convertible policy lets you upgrade to a permanent solution later without bloodwork, without medical exams, and without risk of denial. It’s an insurance upgrade path built into the original plan.
The Biaggi Life Strategy
A well-designed 10-year term also offers a strategic advantage for business owners whose health or weight may temporarily disqualify them from preferred rates.
By starting with a low-cost 10-year term, the business owner can secure the loan today, improve their health over the next 6–18 months, then reapply for better pricing if the company allows it.
If purchased through a carrier with strong conversion options, the policy can later be upgraded without new medical underwriting into a permanent IUL policy that provides:
● lifetime coverage,
● living benefits (depending on carrier and product), ● and long-term financial planning flexibility.
Note: Not all term policies offer living benefits or conversion options. In this case study, the specific 10-year term used did not include those riders.
Choose the Right Carrier
Not every insurance company offers both a competitive term policy and a strong IUL product. And not every agent has access to the full marketplace.
At Biaggi Life, we work with multiple carriers to find the best combination:
● A competitively priced 10-year term
● A seamless, no-hassle conversion to a robust IUL
This level of access gives our clients more flexibility, better choices, and stronger long-term outcomes.
Annual Reviews: The Hidden Advantage
Technology has changed the game. Today, we conduct annual reviews, ensuring nothing falls through the cracks.
Here’s why this matters: if a carrier plans to discontinue their IUL product, they send out notice. But if you’re not actively reviewing policies, you might miss the window to convert.
That’s why we suggest a short check-in every year, often just a 10-minute call. It’s to ensure your conversion rights remain intact and your long-term options stay open.
The Risks of Skipping Smart Structuring
If you skip this strategy and go with a basic term policy:
● You might not be able to convert later.
● You could face new underwriting requirements in the future.
● You could lose out on valuable cash growth opportunities.
● And worst of all your loan could be delayed or denied if the coverage isn’t structured correctly.
Bottom Line: How to Get Approved and Stay Protected
For SBA loan requirements, a term life insurance policy is a powerful tool when used strategically.
Pair it with:
✔ A strong IUL conversion option
✔ Access to multiple carriers
✔ Annual policy reviews
This structure helps you get approved today, while giving you the flexibility to grow and adapt tomorrow.
Need life insurance for an SBA loan?
Schedule a quick consultation with Biaggi Life. We’ll help you structure your policy the right way, affordable now, powerful later.
