Business Loan Protection at a glance:
|What is it?||Who is covered?||Who benefits?|
|Life assurance purchased by a business, which aims to clear business debts if the guarantor dies.||Anyone who has guaranteed these debts.||Policy proceeds are paid to the business, ensuring debts can be repaid.|
Most people take out life assurance to cover their personal debts in the event of their death, for example to clear their residential mortgage. Small businesses often carry some form of debt too, such as overdrafts or commercial mortgages and loans (including Directors’ Loans), but people often neglect to put in place an insurance policy to cover these.
This means that if the owner died, or was taken critically ill, there may not be sufficient liquid funds available to redeem the loans. If a business fails due to the death of the owner (or a partner), and there are insufficient assets to cover the debts, the lender could seek repayment from the guarantor or their estate. This could mean that your personal assets (including your home) may be at risk, and could mean that your family is liable for repaying any business debt – not a situation any of us want to leave our families in!
Even with a Directors’ Loan, the business itself may be left at risk as accounts must be repaid upon the individual’s demise. This means that the business may have to sell assets at short notice to raise the necessary funds. If your business operates a Directors’ Loan facility, how would this be redeemed in the event of your demise?
Business Loan Protection can insure any outstanding debt so that, in the event of the guarantor’s death, funds are made available to ensure the loan will be repaid. This helps to protect the business, including the partners, directors and employees, as well as their families.
The final installment of our Business Protection series will be Key Person Protection.
As always, this article is for information only and does not constitute specific advice. We recommend you talk to a qualified professional before purchasing life assurance.
By Craig Hilton DipPFS