Business Loan Protection Insurance
“Have you given personal guarantees for any loans or overdrafts either you or your business may have?”
“Do you understand the ramifications of these were you to die prematurely or become totally disabled?”
“In the event of a proprietor’s death/disability will the bank call in all guaranteed loans because of concerns about the capacity of the business to stay viable?”
Why is Business Loan Protection Insurance needed?
Business Loan Protection Insurance is a form of business insurance that ensures that upon the occurrence of an insured event (death, trauma or total and permanent disability) with respect to a director/guarantor, the business debt guaranteed by that director/guarantor is fully repaid. The proceeds can be used to protect business owners and guarantors from the ramifications of giving a guarantee for a business loan should an event occur which impinges their ability to make good the liability.
When a director signs a guarantee, it generally means the director has secured a loan for the business directly or indirectly using all or some of his or her personal assets.
The guarantee is usually extinguished only when the loan is repaid in full. A lender may be able to call on the guarantee in the event of death, disablement or trauma.
One purpose of business loan protection insurance is to protect the guarantor and their estate. The availability of proceeds ensures that the funds are available to extinguish the guarantee, releasing the guarantor and their estate from the lender’s security over the family’s assets.
The second purpose is to benefit the business and the remaining business owners – if the debt is wholly or partly repaid, the financial burden on the business is reduced and other guarantors could be released from the bank’s security over their assets.