Most life insurance companies will issue a policy on an individual for the purpose of covering a business loan. Guidelines will vary by the company of course, but most are similar to the following:
- At least five years remaining on the loan.
- Coverage amount up to a maximum of 75% of the loan, prorated for the insured’s percentage ownership of the business.
- Coverage amount is based upon the amount, purpose, duration and interest rate of the loan.
- Venture capital may be limited to a maximum of 50% of the loan.
The most important element is to provide complete loan documentation to the insurance company when applying for this type of life insurance policy.