Can a lender do that?

[David Smith]

A buyer a get a commercial property. However, the lender is asking the buyer to buy a life insurance and add the lender as its interests. Is it legal? Is it typically? The commercial property is already use as a collateral and additional properties of the buyer's portfolio as collaterals. It should be sufficient. Can a lender have such life insurance requirements?

[Aaron Porter]

I have had a few clients be required by their bank to setup funded by sell agreements and key person life insurance policies in the last year.

about 15 years ago my father-in-law was required by his bank to get life insurance before they would fund the next portion of his development.  Life insurance used in this way creates an extra safety net for banks.  They see that regardless of what happens to the owner of the business the finances will stay stable.  

The death of a founding entrepreneur wipes out on average 60% of a firm’s sales and cuts jobs by roughly 17%. on top of that, these companies have a 20% lower survival rate during the two years after the founder’s death compared to similar firms where the entrepreneur is still alive.