Life insurance
can serve to enhance the credit of a business organization
by indemnifying for the loss of a key person and/or assuring
the continuation of the business in the event of the death
of the owner.
Insuring the
lives of key persons assures banks and other lending
institutions as well as suppliers that the business will
have a financial cushion in the event of the death one or
more key personnel.
In addition, if
a permanent form of life insurance is used, the liquidity of
the business is improved through the accumulation of cash
values. These cash values are show up on the business’s
balance sheet as an asset.
Similarly, if
prospective lenders or other creditors are assured of the
continuation of the business, the business will not only be
able to obtain a larger line of credit, but will usually be
able to obtain it on better terms.
Business Life
Insurance used as Specific Collateral
§ A life insurance policy can be pledged as collateral.
§ The cash value of a permanent life insurance may be pledged
as collateral for a loan by assigning the policy to the
lender.
Under the
arrangement above, the basic security for the loan is tied
to the savings element of the life insurance contract, and
the amount of the loan is always covered by the cash value
available in the policy.
§
If the borrower dies before the loan is repaid, the lender
simply deducts the obligation from the proceeds.
Any excess
to the obligation will be paid to the insured's estate or
beneficiary.
In the event
that the borrower is unable to repay the loan, the lender
can recover its funds by surrendering the policy for cash or
by taking a policy loan.
Normally, the loan is
repaid at maturity and the policy is reassigned to the borrower.
A policy may also be pledged as
collateral
with a different purpose in mind!
The purpose may be to protect the lender only against loss arising
from the death of a key person or the borrower.
To the lender,
the head of the business is usually the important asset. The
lender may feel that while the business itself does not
warrant another loan, the business plus the owner who
manages it, would justify the extension of further credit;
however, the contingency of early death must be provided
for.
Life insurance may
also be used as collateral in connection with bond issues.
TermLifeAmerica.com-
Lewis Fink is licensed as an insurance agent
offering Life Insurance in the following states:
Alabama - AL,
Arkansas - AR,
California - CA,
Colorado - CO,
Connecticut - CT,
Delaware - DE, District of Columbia - DC,
Florida - FL,
Georgia - GA,
Idaho - ID,
Illinois - IL,
Indiana - IN,
Iowa - IA,
Kansas - KS,
Kentucky - KY,
Louisiana - LA,
Maine - ME,
Maryland - MD,
Massachusetts - MA,
Michigan - MI,
Mississippi - MS,
Missouri - MO,
Montana - MT,
Nebraska - NE,
New Mexico - NM,
New Jersey - NJ,
New York - NY,
North Carolina - NC,
North Dakota - ND,
Ohio - OH,
Oklahoma - OK,
Pennsylvania - PA,
Rhode Island - RI,
South Carolina - SC,
South Dakota - SD,
Tennessee - TN,
Texas - TX,
Utah - UT,
Vermont - VT,
Virginia - VA, and
Wisconsin - WI.
Not all insurance products from all insurance companies are available in
all states.
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