Frequently also referred to as commercial debt or business liability protection insurance, business loan protection insurance is a type of insurance policy every business with outstanding liabilities/debts should consider having. Here is why.

Business Loans and Guarantors

To understand the importance of having a loan protection policy in place, it is important to understand what business loans/commercial debts and the risks involved in leaving such outstanding liabilities unprotected are.

The terms ‘business loans’ and ‘commercial debts’ basically include all your business’ overdraft facilities, asset finances, development loans and commercial mortgages – all of which are typically secured against you (the owner), shareholders, directors and/or other key individuals within your company.

Known as guarantors, these individuals essentially provide lenders with a guarantee that the outstanding debt will be repaid and that they will, if necessary, do so themselves. So, what is the risk?

Unprotected Business Loans

Without a suitable loan protection policy, if a guarantor should become critically ill or die, one of two things could happen:

  • The lender may demand immediate repayment of the debt in full. Unless your business has access to enough financial resources to cover the outstanding amount, this could leave your company with a significant financial burden at a point in time when the business’ financial future is already at risk due to the loss of a key member of staff.
  • The debt may be transferred to the deceased guarantor’s estate (family). If said family has no interest in the business, they may not be able to take on this commitment – again, this could result in your company being forced to immediately repay the loan/debt in full.

In other words, not insuring your business against the loss of a business loan guarantor could leave your business with considerable financial difficulties in the event of such a guarantor passing away or developing a critical illness.

Business Loan Protection Insurance

Designed to prevent a business’ financial security being affected by a guarantor’s unexpected critical illness diagnosis (if relevant cover is included) or death, business loan/business liability protection insurance policies will, pay out a lump sum to help pay off relevant outstanding debts in full.

Depending on the chosen cover amount, this lump sum may even help cover some of the expenses incurred due to the loss of the insured individual (i.e. loss of contacts or trade; recruitment/training of a replacement, etc.)

Why Have Business Liability Protection and Who Should Have it?

Considering the potential risks of leaving outstanding commercial debts unprotected in the event of a guarantor’s critical illness/death, business loan insurance is a must for every company with such outstanding debts.

Expert Advice

Finding the right type and amount of cover at the most affordable premiums can be a difficult undertaking. Having assisted businesses across all industries set up commercial debt protection insurance for many years, Spectrum FA advisors have the experience and in-depth knowledge necessary to help your company get the cover you require to protect your business financial future. Call us now to learn more: 01279 315 013.