Can You Use Life Insurance As Collateral? 
Yes , you can use life insurance as collateral . Many lenders require purchase of Term life insurance as collateral for individuals to obtain small business loans . The insured person and lender simply sign a collateral assignment form that assigns to the lender the amount of life insurance that is needed to cover repayment of the loan . The remainder of the death benefit is paid to the beneficiary of the borrower 's choice . Sometimes business use life insurance on a key employee to obtain business expansion loans . 