Do I need life insurance to secure a business loan in Nevada?

Many Nevada lenders—including banks, credit unions, and SBA-approved lenders—require business owners to assign a life insurance policy as collateral for a business loan. This is sometimes called a collateral assignment. If the borrower dies with the loan outstanding, the lender receives the amount owed and the remaining death benefit goes to the designated beneficiary.

The SBA's 7(a) loan program, widely used by Nevada small businesses, commonly requires life insurance on principals whose death would significantly affect the business's ability to repay the loan. The required coverage amount is typically tied to the outstanding loan balance.

Even when not required by a lender, life insurance on key owners provides important protection. Without it, a surviving spouse or family members might inherit both the business and a personally guaranteed debt, with no liquid assets to service it.

Term life insurance is often the most cost-effective way to satisfy a lender's collateral requirement during the loan term. Alternatively, the cash value in an existing permanent policy may be assignable as collateral.

When assigning a policy as collateral, the lender's interest is typically recorded via a formal collateral assignment document. Agents in our network can help you structure coverage that satisfies lender requirements while also meeting your personal protection goals.