by Guest » Tue May 04, 2010 04:53 pm
I am the beneficiary on life insurance policy that was taken out as collateral on an SBA (small business admin) loan for a business building mortgage. I have been contacted by a third party admin to sign papers to pay off the SBA loan and then receive the remainder of the money? Am I liable for anything related to the business now that I am signing the life insurance money over to pay for the outstanding loan amount? And, in addition, accepting the additional money - is there any reason I should consider to disclaim this policy or the proceeds above the loan amount? Should i contact an attorney about this and what specialty? Being a beneficiary am I accepting any company/business related obligations. If this life insurance poilcy is paying off the building loan - am I entitled and now owner of the building since I am paying off the loan? Also, please note the building will sell for approx the same amount as the loan the life insurance policy will pay off (please note I am not the one selling the building - there is a another outside person involved that will sell it.)
Posted: Wed May 05, 2010 02:15 am Post Subject:
Hi, and welcome to the forum.
I can see no reason at this point why you should consider hiring legal counsel.
It appears as if one possibility is that there was a collateral assignment in play when when the insured was still alive. This typically indicates that the policy was a permanent, cash value policy and the policy owner used the policy's cash value as collateral for that SBA loan. He would have signed paperwork to that effect, naming the SBA as first in line to receive the proceeds should he die prior to paying off the loan, which obviously happened or their wouldn't still be a loan/lien in effect.
Another possibility is that this is simply a form of "credit life insurance" that was put into place in order to protect the lender's interest in case the borrower should die before the loan is paid off.
It's legal and enforceable, assuming the paperwork's in order. I would ask the SBA for documentation on the loan, including payment history and a copy of the collateral assignment, if they have not already provided this to you. I'm not honestly sure if they have to provide this info to you, but they will have to provide it to the carrier in order to get their share of the proceeds. If this was simply a credit life insurance thing, they'll have paperwork on that, too.
Am I liable for anything related to the business now that I am signing the life insurance money over to pay for the outstanding loan amount?
I would heavily doubt it. You're just paying off a loan.
As to this:
is there any reason I should consider to disclaim this policy or the proceeds above the loan amount?
and this:
Being a beneficiary am I accepting any company/business related obligations. If this life insurance poilcy is paying off the building loan - am I entitled and now owner of the building since I am paying off the loan?
I see no reason to disclaim the balance of funds nor do I see you accepting any liability from THIS situation regarding any problems of the business. As to anything regarding the business, the life insurance issue is a separate concern from the business ownership issue. What do you know about the perpetuation and ownership transfer of the business and other holdings upon the death of the insured? That's what will determine anything having to do with the business itself.
Hope this helps!
InsTeacher 8)
Posted: Thu May 06, 2010 05:33 am Post Subject:
You don't indicate if the business was a sole proprietorship, incorporated, or an LLC. It apparently was not a partnership, otherwise the partner probably would have been the beneficiary.
As InsTeacher has said, you are unlikely to bear any personal liability for obligations of the business, unless you were a partner in it.
Even if you were named as the executor or sole beneficiary of the estate, you are not liable for anything other than the proper administration of the affairs of the decedent to wind down the estate and see that debts are paid with estate assets, and distribute any remaining assets to the heirs/beneficiaries of the estate.
Am I liable for anything related to the business now that I am signing the life insurance money over to pay for the outstanding loan amount?
If there was a collateral assignment in effect, you are not "signing money over" to the SBA. The assignment takes precedence over any beneficiary's claim. You would simply be signing a death claim form, supplying information that confirms you as the named beneficiary, in order to receive the balance of the proceeds.
That the SBA loan is being paid off means that if anyone is entitled to take possession of the business/business assets, they are probably going to be received free-and-clear of any encumbrances, aside from any other secured interests.
The only thing a lawyer might do for you at this point, is take your money for no good reason, leaving you a little poorer and perhaps a little wiser in the future.
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