Can You Use A Life Insurance Policy As Collateral? 
Yes , you can use a life insurance policy as collateral in some situations . The Small Business Administration -LRB- SBA -RRB- often requires a life insurance policy on the borrower so that they can get their loan paid by the policy in case of death of the insured . Key employee life insurance can sometimes be used as collateral for obtaining business loans . To use a life insurance policy as collateral for a loan , most lenders require that the policy be assigned to them . This is done by a collateral assignment form . The beneficiary of the policy is usually a relative of the policy owner , but the collateral assignment form allows the lender to take what is owed to them first . Then the remainder goes to the beneficiary stated . 