In this video, I will go over the key points of insurance for a term loan. Before we get into it, let’s discuss what exactly a term loan is. It’s when we extend financing to a customer for the purchase of something, whether that’s land or equipment, and the loan is repaid and paid regularly over a set period of time. Typically, the repayment is going to be monthly over several years. Equipment loans will be around a three to seven-year payback, land loans are more similar to a traditional mortgage, which is around a twenty-year payback.
Now that we’ve talked about what a term loan is, let’s get into the specifics of insurance for equipment loans. First, if we are doing a loan for a piece of equipment, you’re required to get insurance on that piece of equipment. For any of our insurance requirements, Texas Farm Credit needs to be listed as the loss payee on the policy. This means that we have a lien on that piece of equipment, if a loss were to be claimed on the insurance policy, Texas Farm Credit would receive the relevant proceeds of insurance from the claim. Typically, if there are any funds leftover after it pays off the loan, they will go back to the customer.
When we compare this with land loans, it’s important to note that for land loans, insurance is not always required. What potentially triggers insurance for a land loan is if there is a structure on that property. When that is the case, it triggers two different insurance policies. The first one that comes into play is flood insurance. With any instance involving a structure, Texas Farm Credit must do a flood zone determination. If that determination comes back, showing that the structure is in the flood zone, it will typically require flood insurance on that structure. Next, the second insurance that gets triggered is hazard insurance. For land loans, we normally get the property appraised, which means the appraiser will assign a market value to it. If there is value in the structure, hazard insurance will be required.
After discussing these key points specific to our term loans, one more thing I’d like to mention that we offer with every loan is credit life insurance. This is something that we particularly try to put a focus on for larger, longer loans. If a customer already has life insurance, that is enough to cover this new debt if something were to happen to them. That’s great! However, if a customer does not have life insurance, or they do, but it is not enough to cover the new debt, it is something to consider. We know that this can sometimes be a difficult subject to talk about and we understand. We want you and your family to be in excellent hands and taken care of, whatever the circumstance.
Frequently Asked Questions
Loan insurance allows you to qualify for a loan that you might not otherwise be able to get. If you are making a down payment of less than 20%, then you will typically need to pay for loan insurance.
The cost of your loan insurance depends on a few factors like the size of the loan and your credit score. Typically, you can expect your term insurance loan to cost between 0.58% and 1.86% of the loan amount. This can be paid either monthly or in a lump sum up front.