How To Use Life Insurance As Collateral For A Loan? 
To use life insurance as collateral for a loan , you usually name a relative as the Primary Beneficiary , then fill out a collateral assignment form for the lender . This allows the lender to take whatever part of the death benefit that is needed to pay off your loan , and your Primary Beneficiary will receive the rest . The Small Business Administration often requests the purchase of a 10 year Term policy , so that they are assured to have their loan paid by the death benefit if you would pass away before the loan is paid off . 