How does business loan protection insurance work?

Business loan protection cover can be taken out either on a level or decreasing protection basis. Level protection means that the amount of cover remains the same throughout the term of the cover. With decreasing cover, the sum insured reduces in line with the outstanding debt.

What’s the difference between business loan protection and key person insurance?

Whilst you could potentially use key person cover to provide the funds to repay a business loan , these two types of business protection are designed for different purposes. Business loan protection insurance must be taken out with the amount of cover matching the outstanding value and repayment term of the loan . Key person insurance will provide a lump sum to the company to help ease the financial impact if they should die or suffer a critical illness (depending upon the cover chosen) within the term that’s chosen to be appropria

Do I have to take out insurance protection for a business loan?

<span class="NormalTextRun SCXW8780342 BCX0" data-ccp-parastyle="Normal6" data-ccp-parastyle-defn="{"ObjectId":"b1b70037-1d17-4f4d-825c-2c602aa8c9cd|24","ClassId":1073872969,"Properties":[469775450,"Normal6",201340122,"2",134234082,"true",134233614,"true",469778129,"Normal6",335572020,"1",335559705,"1033",134245417,"false",469778325,"[\"Body Text\",\"Title6\",\"List Paragraph\",\"Table Paragraph\",\"Subtitle\",\"Subtitle0\",\"Subtitle1\",\"Subtitle2\",\"Subtitle3\",\"Subtitle4\",\"Subtitle5\"]"]}">There is no legal requirement to arrange business loan protection insurance. However, in most situations, the lender or investor will require proof of repayment security in the form of an insurance policy.

Business Loan Protection

Q: What does business loan protection insurance cover?

Most types o f business loan can be protected, including bank loans, director loan accounts, venture capital loans and private guarantees.

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Smart business owners recognise that, in order to ensure the future success of their business, a resilient people strategy is critical. Loans are an efficient way to support investment, growth and cash flow – many businesses have them. Have you thought about how you would service this loan if the business owner or a person who the business relies on, were to suffer a serious illness or pass away. It’s important to understand your liability when setting up the cover.

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If the business fails due to the death or illness of an owner or key employee and the business doesn’t have the funds to repay the loan, the guarantee could be used by the bank and put personal assets, including the owner’s home, at risk.

How we support

Whenever you consider taking out a loan – whether that be for your business, your home or a personal loan, it’s really important to understand the liabilities and potential risks.

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Business loan protection insurance is designed to support your business by providing funds to pay off any outstanding loans you might have should the guarantor die or be diagnosed with a terminal illness (if life expectancy is less than 12 months).

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How can business loan protection help you?

Lenders may have the right to demand that the business pays back any outstanding loans. These could be difficult to pay off at short notice.

Some business loans may also have personal guarantees. How would your business survive if faced with the challenge of re-paying a loan if something happened to the individual/s that the repayment relied on?

Business loans can be arranged with the owners being jointly liable, severally liable or jointly and severally liable for the repayments. It’s therefore vital that business loan protection is arranged correctly and provides cover for the right people to protect the liabilities.

It’s also possible to include critical illness cover so that the policy would pay out if the guarantor were to be diagnosed with a specified condition during the term of the cover. Most types of business loan can be protected, including bank loans, director loan accounts, venture capital loans and personal guarantees.

Questions to consider with business loan protection

Who does your business rely on for contribution to turnover, client introductions, operations management?
Would your business be affected if a key employee were taken ill or even worse?
What plans do you have in place if this were to happen?
In view of the difficult economic climate, would you be able to retain clients / keep employees motivated / repay loans?
How would you keep control of your business if something happened to one of your partners?
Is any debt adequately covered should the worst happen?
And what about the families… can they maintain their standard of living without support from the business?