If you are the owner of a new or expanding company, business credit life insurance allows you to secure more easily a business loan by guaranteeing its repayment through a life insurance policy on your life. In addition to wanting to see evidence of your skills and talents as a business owner, a lender also wants assurances that a loan will be repaid, even if you die unexpectedly. Business credit life insurance makes this possible. This insurance may help you to obtain a business loan if your company has few assets and a lender believes that the business’s future depends on your continued good health.
Tip: To keep costs down, you may be able to purchase a policy with a face value that declines as you pay off the loan. This is likely to be less expensive.
Caution: Even if you do take out business credit life insurance, you may still have to personally guarantee the loan.
Similar to Credit Insurance for a Car Loan or Mortgage
Business credit life insurance is similar to the credit insurance a lender may suggest you buy when you take out a new car loan or a mortgage. It covers the outstanding obligation in case something happens to you before the loan is fully repaid.
Tip: If you are the owner of a new or expanding company, business credit life insurance allows you to secure more easily a business loan by guaranteeing its repayment through a life insurance policy on your life. In addition to wanting to see evidence of your skills and talents as a business owner, a lender also wants assurances that a loan will be repaid, even if you die unexpectedly. Business credit life insurance makes this possible. This insurance may help you to obtain a business loan if your company has few assets and a lender believes that the business’s future depends on your continued good health.
When Can You Use It?
To obtain a loan for a new or expanding business: New and expanding businesses require cash to fund ongoing operations and expansion plans. Borrowing money creates an additional liability that can affect your business’s future if you die before the loan is repaid. Creditors may want assurance that your business loan will be repaid if you die unexpectedly. Business credit life insurance allows you to obtain a business loan more easily by guaranteeing its repayment through a life insurance policy on your life.
How Does It Work?
After you obtain a business loan, you purchase a life insurance policy in an amount equal to the loan, naming your creditor as the beneficiary or collaterally assigning the policy to your creditor. You pay the policy premiums. If you die before the loan is repaid, the insurer pays a death benefit to your creditor equal to the outstanding loan balance. Any remaining death proceeds are paid to the business or to another designated beneficiary.
Strengths
Guarantees repayment of a loan for your new or expanding business: With a new or expanding business, you may not have a track record or collateral to assure creditors that a loan will be repaid if you die unexpectedly. Creditors may require you to personally guarantee a loan. Business credit life insurance offers an alternative. It allows you to use a life insurance policy on your life to guarantee repayment of a business loan.
Offers a low-cost way to pay off the obligation: If you are indebted to a business creditor and die unexpectedly, business credit life insurance offers a way to pay off the indebtedness.
A permanent policy provides long-term flexibility: A permanent insurance policy can ultimately serve more than one purpose. You can designate the creditor as a beneficiary for the amount required to repay the outstanding loan balance. If the obligation is fully repaid while you’re still alive, you can change the beneficiary. The policy could then serve as a key person policy, or it could fund a deferred compensation plan.
If you have questions, contact the experts at Henssler Financial:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Disclosures: The following information is reprinted with permission from Forefield, a division of Broadridge Financial Solutions, Inc. This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
