ThinkIFA guide ‘Business Loan Insurance’
Many companies have taken out loans and many of them rely on the success of their business to pay back these loans.
However, have you thought about what might happen should a key person within your business, such as a partner, director or major shareholder, becomes critically ill or dies? In many instances this would leave the business unable to pay back the loan and this in turn could put the business at risk.
Business loan protection is designed so that if something happens to a key person within your company, the loan is repaid.
How Business Loan Protection Works
Loan insurance is usually taken out along with life insurance for the key people involved in the business. Policies cover 3 main scenarios:
- Director Loans Accounts
These are usually to be repaid upon death and can be covered by business loan insurance.
- Business Loan Guarantors
If you have used a guarantor to secure your business loan then, should anything happen to that guarantor, the loan company may well look to the estate of that person for repayment.
- Commercial Mortgage/Overdraft/Loan
Non repayment of these could potentially put your business at risk.
Other Considerations of Loan Insurance
As with any type of insurance you will need to look to the terms of the policy to ensure it is as comprehensive as you need it to be.
You will need to consider:
- Level of Cover
This depends on whether you need the total sum of the loan to be covered or just part of it.
Generally premiums paid by the business are not deducted as a business expense but if in doubt, please speak with an independent financial adviser.
If your business is a company, LLP or Scottish Partnership then you won’t usually need trusts as the policy can be business owned but if you are trading as a partnership you may require trusts.
Having business loan protection will not only safeguard your business in the event of the death or serious illness of a director or partner but will also protect the estate of the partners too as many use their own assets as personal guarantees.