Business loan protection can include coverage to cover a loan, commercial mortgage, or a director’s loan if one of the company owners die or suffers from a medical condition.
Your company will have insurance cover for the entire loan or mortgage sum, or cover the life and critical illness. If they make a claim, the guaranteed amount is either paid to the company or directly to the lender if allocated to the scheme.
Many businesses take out loans to start up a company or to expand their operation. And their ability to repay often rests on a few key people. Insurance helps to pay an outstanding loan if any of those key people were to become critically ill or die, this is similar to Business Income Protection. If your company is classified as a small to medium sized enterprise, the risk of getting into debt with no loan insurance is considered much higher. Many smaller businesses and start-ups depend on loans to get off the ground, and these companies are typically less well-equipped to reimburse them if they face trouble.
A lot of businesses would be taking a risk if they had unpaid unprotected debts. If the business was to go bankrupt as a result of losing its owner, the lender may claim compensation from the guarantor or their property, placing assets (such as home) at risk. The company’s properties will still need to be sold off, and could even be put into bankruptcy in the worst-case scenario.
How Does Business Loan Protection Work?
When you take out Business Loan Protection, or Business Income Protection, you decide how much cover you want. This amount is called the ‘sum assured’. This is the amount we pay if the person covered dies or is diagnosed with a terminal illness during the term of the policy. There are two forms of cover— Decreasing cover and Level cover. Which one you choose depends on the nature of your loan. Decreasing cover falls alongside your repayment debt and hits zero after completion of your loan. At the other hand, the level cover stays constant over time and is hence typically used to cover interest-only loans, where the principal value is not repaid before the loan ends. Level cover guarantees that the remaining balance of loans is still secured, right up to the end of the loan period.
Who Will Be Covered And Who Will Gain?
Typically this would be the owner, a director or a partner. Generally, when a company takes out a commercial loan, the credit provider will allow a guarantor to be listed on the agreement. If that person passes away, the debt will not die with them. When the person who guaranteed the debt dies or is unable to function due to a serious illness specified in the policy terms, a business loan insurance package will pay out. It is the company itself that profits from having its loans repaid during difficult times.
How Much Does Business Loan Protection Cost?
Premium costs depend on the age and health of the policyholders and on the inherent risk factors of their status
How Much Cover Do I Need?
The level of cover you need should match the amount you borrowed. This is to make sure anything can be reimbursed should anything happen. It may also be taken out on either a level basis where premiums stay the same over time or on a decreasing basis to represent the repayments you will be making during the insurance period.
What Are The Advantages Of Business Loan Protection?
Peace of mind comes with Business Loan Protection. Preparing for any situations which may occur in the future is wise. Business Loan Protection Policy helps with cash flow if a main person dies or is suffering from a serious illness. It helps the company to remain a float and to function as usual.
It can also help facilitate any repayment plan changes based on the guarantor’s loss. Business loan insurance provides the company with an extra layer of security.
For more on Business Loan Protection, get in contact with a member of our team at WIS Business Protection.