Insurance for Business Loans by Trey Fairman, J.D., LL.M. March 22, 2016

Expert Interview: Long Term Care Insurance
November 10, 2020

More and more lenders are requiring borrowers to carry some amount of life insurance or disability income
insurance as a condition to offering credit. The banking industry is becoming increasingly aware of the hazards
to loan repayment resulting from the death or disability of the borrower. Nearly 50% of mortgage loan
foreclosures are due the disability of the borrower while 2% of mortgage loan foreclosures are due to death. 1
Additionally, disabling medical problems contributed to 62% of all personal bankruptcies filed in 2007. 2 This is
a 50% increase over results from a similar 2001 study. This trend is concerning.
When insurance is required to protect the loan, it may be more cost effective for the borrower to obtain a
new policy specifically designed to match the loan terms. We offer two types of insurance to insure business
Term Life Insurance
This unique insurance policy was designed to indemnify a lender for the outstanding balance of a business
loan. By structuring the death benefit to decline as the loan balance decreases, the annual premium cost to
the borrower is reduced.
We can often secure coverage very promptly. Insurance protection is often left until the very end of the loan
underwriting process and with a short window for loan approval and funding, delays in obtaining coverage can
be costly. With just a two-page application and a copy of the loan documents, we are often able to
underwrite, accept premium provide proof of bound coverage within five business days.
Indemnification Disability Insurance
This coverage will ensure that loan payments will continue to be made if the borrower becomes too sick or
injured to earn an income. This type of policy can be structured to make the remaining loan payments over
time or to pay off the remaining loan balance in a lump sum. Annual premium costs for the borrower are
reduced because the policy is set up to mirror the loan terms with a declining benefit.