SBA 7a Life Insurance Requirements: What You Need to Know

When applying for a small business loan under the SBA’s 7(a) program, one basic requirement is to have life insurance coverage assigned to the lender. This collateral assignment of life insurance provides an added layer of security in case the borrower passes away before the loan is fully repaid. Understanding these life insurance rules is necessary as you prepare your 7a loan application.

In this article, we’ll break down the key elements of life insurance requirements for SBA 7(a) loans, including:

  • Coverage amount
  • Term length
  • Premiums
  • Additional considerations

Let’s dive in!

Coverage Amount

The first requirement correlates to the size of the life insurance policy. The SBA mandates that the coverage amount must be equal to or greater than the loan amount.

For example, if you apply for a $500,000 SBA 7(a) loan, your life insurance policy would need a death benefit of at least $500,000. This guarantees that if the borrower dies, proceeds from the insurance policy can pay off the outstanding loan balance.

If two or more borrowers are actively involved in running the business, the coverage amount can be divided proportionally. For a $1 million loan with two active owners, each owner could assign $500,000 of coverage.

Term Length

In addition to size, the length of the life insurance policy also comes into play. The term of coverage must extend for at least as long as the loan term itself.

So if you take out a 7(a) loan with a 20-year repayment term, your life insurance policy would also have to be a 20-year term policy. This parallel duration covers the lender for the full payback period of the loan.


While the SBA documentation does not specify details on premiums, securing life insurance still represents an added cost. Premiums are based on personal factors like the borrower’s age and health status, as well as the size of the policy and length of coverage being required.

Borrowers must work with an insurance agent to find the most competitive policy that aligns with the SBA mandate. Be sure to get premium quotes from multiple providers.

Additional Considerations

Beyond the core requirements above, there are some other key considerations around SBA 7(a) life insurance:

Collateral Assignment
The life insurance policy must have a collateral assignment filed with the insurance company, granting the lender access to a portion or all of the death benefit payout if the borrower passes away.

Existing Policies
If you already have life insurance, you can use your existing policy instead of getting a new policy. However, you’ll likely need to adjust the coverage amount and term length to meet SBA requirements. Your lender can guide you on this.

Waiver Possibility
In certain cases, the life insurance mandate can be waived. This may apply if the lender decides the business could survive the death of an owner and continue repaying the loan. But waivers are rare and determined on a case-by-case basis.

The Bottom Line

While the details may seem complicated, SBA 7a life insurance rules are designed to protect lenders while also avoiding unnecessary burdens on borrowers. By understanding the requirements around coverage size, policy length, premiums, and collateral assignment early on, you’ll be better prepared to secure financing and set your small business up for success.

Consider Using Us To Get Everything Right! 

Starting your journey with us to receive a quote is a very simple process. Here is a quick walkthrough.

Homepage: Your first step involves visiting our homepage, where the quote form is readily accessible.

Completing the Quote Form: On the form, you will be asked to input several pieces of essential information, which include:

  • State: Enter the state of your residence or where your business functions.
  • Insurance Type: Select the term length for the policy you are considering; options range from 10, 15, 20, 25, and 30 years to lifetime coverage.
  • Date of Birth: Your birthdate is required to assist in estimating your premium based on age.
  • Gender: Specify your gender, male or female.
  • Smoking Status: Clarify if you smoke, as this has a significant impact on your insurance premiums.
  • Health Classification: Pick the category that most accurately describes your health, with choices usually including Preferred Plus, Preferred, Standard Plus, and Standard.
  • Coverage Amount: Choose the coverage amount that meets your needs, aligning with both your SBA loan requirements and financial security goals.

After filling in the required details, click the display quotes button. We will then give you a variety of quotes from different insurers, allowing you to compare and contrast rates and plans thoroughly.

Following your quote selection, a specialist from our team will reach out to discuss your choices further and guide you towards the most suitable path.

If you have any questions or concerns, you could also reach out to us for more information here!