Business Loan Protection

Business Loan Protection

Business Loan Protection provides your business with a lump sum payment to cover business loans, in the event that a shareholder or business partner passes away or suffers a serious illness.

A key person, such as yourself, can put immense pressure on the remaining business owners. In addition to increased workloads and potential loss of profits, there may be financial obligations like outstanding business loans to manage.

Settling outstanding debts, such as overdrafts, loans, or commercial mortgages, can help relieve financial pressure from creditors. Lenders often require coverage, and personal guarantees (such as using your home as security) might have been given. Therefore, it’s important to ensure that your dependents are also protected.

You’ve invested significant effort into building your business, so it’s essential to safeguard it! Protection is crucial for allowing your business to recover quickly and minimize the impact in the event of an unexpected loss.

How do I know if I need business loan Protection?

If you’ve made loans to the company, whether through cash injections or by deferring salary, bonuses, or dividends, these are classified as director loan accounts. In the event of your death, these loans become payable to your estate, so they should be factored into the amount of coverage you need. In a partnership, similar loan accounts may exist, and they should also be covered.

If you’re unsure as to whether you need business loan protection, consider the following:

• Do you have a director’s or partner’s loan account in your business? • Do you have a business bank loan or commercial mortgage? • Have you given a personal guarantee for a business loan? • Does your business have an overdraft or other forms of borrowing?

If you answered yes to any of these questions, business loan protection may be very beneficial for future-proofing your business.

Should I add Critical Illness to my policy?

It’s wise to include director loan accounts when calculating critical illness coverage as well, ensuring the company can repay the loan and provide you with personal financial security in the event of a critical illness.

You are much more likely to experience a serious illness than to pass away and depending on the illness or condition (such as a heart attack, cancer, or stroke), you may be unable to work, impacting your ability to manage any debts.

Critical Illness Cover ensures that you can repay your debts, alleviating unnecessary stress and worry during what is already a challenging time. It means you can focus on your recovery rather than worry about your business finances.

How does business Protection Insurance work?

Business Protection is a safety net for your business finances and ensures your business has the necessary funds to settle outstanding debts in the event that a key employee passes away or suffers from a critical or terminal illness.

Business loan protection typically comes in one of two forms:

Level Protection In this option, the pay out from business loan protection remains constant throughout the coverage period, unless the policyholder makes changes.Decreasing Protection With decreasing protection, the pay out amount gradually reduces over the life of the policy. This type of coverage is particularly useful when the value of the debt is also decreasing over time.

For instance, as you pay down a loan or mortgage, you’ll need less money to cover the remaining outstanding debt.

How much does Business Protection Insurance cost?

The cost of Business Protection Insurance depends on a range of factors such as how much cover you need, plus health and lifestyle factors such as your age, smoking status, medical history, job and hobbies.

Here at The Mortgage Masters, we take this information from you to ensure that any potential quotes are accurate from the outset.

Are premiums classed as a business expense?

Yes- Payments can be taken by direct debit, directly out of your business account.

Who does the money get paid to in the event of a claim?

All proceeds will get paid directly to the business as it is the business who takes out the policy. You can then distribute the money to clear any debts accordingly.

What if our levels of debt change?

We understand that business finances can fluctuate. For this reason, it is worth reviewing your policy regularly. There are no costs involved in cancelling your policy and you can do so with immediate effect if required.

Is Business Loan Protection Compulsory?

There is no law in place to say that you must obtain business loan protection. However, since banks will only approve loans when you can provide security to guarantee repayment, having business loan protection is strongly advised. Without this coverage, either the business or the directors could be held responsible for significant loan repayments that they may struggle to manage.

Conclusion If your business is securing loans or mortgages and relies on a particular employee or group of employees for repayment, you should strongly consider obtaining business loan protection. If you want to find out more about it, please get in contact with our expert team for a free, no obligation quote.