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A life insurance collateral assignment can strengthen your borrowing power, but it could also leave your family more exposed financially if you died unexpectedly.
Here are some optimal times to leverage your life insurance policy as collateral: Different phases of life usually call for different levels of insurance coverage.
Someone with a young family and a new mortgage may need $1 million or more to feel secure about the family’s finances if the worst happened.
Unlike a term life policy, a whole life policy will slowly accrue cash value in addition to the level of death benefit.
This cash value could help secure your loan by serving as collateral in case you default on the loan.
If you have just enough insurance to protect your family but you’d like to make a collateral assignment, consider getting a new policy specifically for the loan’s collateral.
Along with keeping your family’s life insurance protection intact, you can also design the new policy’s coverage amount and term length specifically to match the loan.
Term policies last for a specific amount of time, usually ranging from 10 to 30 years.
Because term life coverage is not permanent, and because term policies have no value beyond the death benefit itself, they can usually offer you more coverage at a lower premium.
Some business lenders require life insurance as collateral to protect the loan.
Other times, a borrower doesn’t have other forms of collateral to put up.