Business Loan Insurance: Beyond the Lender's Quote
How an independent insurance approach helped a business owner secure 30% lower premiums for required corporate loan insurance—and why protecting business value matters more than just covering debt
Important: Insurance Products (Not Mutual Funds)
This case study discusses life insurance products and their tax treatment. Life insurance is regulated under the Insurance Act. This case study does not discuss or compare mutual funds offered through WhiteHaven Securities Inc.
Client Profile: Marcus
Background
Age
60s
Business
Parts supply for car dealerships
Annual Profit
~$1.5M after tax
The Challenge
COVID-19 Impact
Business interruption, needed $5M line of credit
Lender Requirement
$5M life insurance required
Bank's Quote
150% above standard
Medical Condition
Constant noise in ears (5 years of testing)
The Solution
Approach
Independent broker, preliminary underwriting research
Companies Researched
15-16 insurance companies
Result
~30% lower premiums
Business Value
Estimated Market Value
$10-15M
The Risk
If owner dies, business could go bankrupt within 3-4 months
The Insight
Protecting loan ($5M) ≠ protecting business value ($10-15M)
The Situation: COVID-19 Business Interruption
When COVID-19 hit in 2020, Marcus experienced a serious business interruption. When dealerships closed their doors for several months, sales stopped across the industry, and Marcus's business experienced a significant slowdown.
The Need
To bridge the gap until business returned to normal, Marcus needed to access a $5 million corporate line of credit. His lender had a reasonable condition: Marcus needed to be insured for $5 million to protect the lender's financial risk.
This is common practice. Lenders want assurance that if a key person—often the owner who drives business operations—passes away, the loan can be repaid without requiring the business to liquidate assets or risk default.
The Challenge: Medical Underwriting Complexity
Marcus had a medical condition related to constant noise in his ears. This condition had required five years of medical testing and investigations to understand, though doctors determined it wasn't dangerous. Nevertheless, it affected his insurance application.
The Bank's Quote
The lender referred Marcus to their in-house insurance arm, which quoted rates approximately 150% above standard rates for the $5 million policy due to his medical condition.
At that point, Marcus was introduced to me by a friend who is also a client. The task was straightforward: find short-term life insurance for $5 million at a better rate than the lender's insurance arm offered.
The Approach: Independent, Brand-Agnostic Research
An independent, brand-agnostic approach made the difference
Preliminary Underwriting Opinion Research
Instead of applying to one or two insurance companies directly, we conducted preliminary underwriting opinion research. This is an anonymous process where we:
- Collect information from the client about their condition and the reason for the rating with the first insurance company
- Submit requests anonymously (without providing client names) to multiple insurance companies
- Ask for underwriting opinions—basically asking the risk evaluation teams at each company what they think the pricing might be based on the medical information
- Compare responses across providers to identify which companies might offer better rates
The Result
We have access to approximately 15-16 insurance companies, including all large companies and most mid-sized companies. This broad access allows us to find the best fit for each client's specific situation.
Based on this research, two providers offered a more favorable outlook for an application. We submitted applications to both companies and secured approximately 30% lower premiums than the bank's initial quote.
Why This Matters: Beyond the Loan Amount
While securing better rates on the required loan insurance was the immediate goal, this case also illustrates a broader principle
The Operating Company Risk
In Marcus's case, his business generates approximately $1.5 million in annual profit after tax. If you run a quick market value estimation projecting the next five years of cash flow, this company could be worth $10-15 million if the owner were to sell now.
However, if the main owner—who is also the CEO and the main driver of business operations—passes away, what happens to that market value?
The Reality:
I've seen similar situations where a profitable company goes bankrupt within three to four months after the death of the main shareholder, even when loans are paid off by life insurance. Here's why:
- The business stops operating effectively—the main decision-maker who moves most of the parts in the business and makes it deliver profit is gone
- Financing continues—loans still need interest payments and capital repayments
- Assets aren't easily liquidated—even if the company has working capital (receivables, inventory, short-term assets), these aren't in circulation if the business isn't operating
- Market value collapses—the company's market value can quickly drop below zero if operations stop
Three Risks to Address
When you have significant market value locked in an operating company, consider three types of insurance:
1. Death
Life insurance protects the market value if the owner passes away
2. Critical Illness
Critical illness insurance helps compensate for business interruption during recovery
3. Disability
Disability insurance funds hiring a manager to substitute for the disabled owner
Each serves a different purpose in protecting the business value and family net worth.
Key Takeaways
What this case study demonstrates
Shop Beyond the Lender
An independent, brand-agnostic approach allows comparison across multiple insurance providers to find the best fit for your specific medical situation and needs.
Protect Business Value
While insuring loans is often required and makes sense, consider whether you need additional coverage to protect the full market value of your operating company.
Consider All Three Risks
Death, critical illness, and disability all threaten business continuity. An insurance portfolio designed to protect operating company value should address all three.
Protect Your Business Value
If you have corporate financing that requires life insurance, or if a significant portion of your family's net worth is locked in an operating company, consider discussing your situation with an independent insurance advisor.
Important Disclosure
This case study is illustrative only and not a substitute for professional advice. All client names and specific identifying details have been changed to protect confidentiality. This is an illustrative example of process and approach, not a guarantee of outcomes.
Every situation is unique. Insurance rates, availability, and terms depend on many factors including age, health, business structure, and insurance company policies. What worked in this case may not be appropriate for your circumstances.
Insurance is offered through iAssure Inc. Insurance products and related services are provided through iAssure Inc., an independent firm in the insurance of persons and in the group insurance of persons. These activities are neither the business nor the responsibility of WhiteHaven Securities Inc.