Business Loan Protection Insurance 2020
Do you own a business? Are you worried about the continuity of the business, particularly the ability to repay any company overdraft or commercial loan should something happen to you?
Did you know that business loan protection insurance is designed to repay any outstanding business debts should you die or cannot work due to a critical illness diagnosis?
This guide will explain how business loan protection insurance works and why it should be considered for businesses and startups. Read on to find out more.
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How Does Business Loan Protection Work?
When an owner or company director of a business dies or becomes disabled to a level where continuing to work is not an option, corporate lenders may invoke the right to recall any outstanding debt as it may tie specifically to the owner’s finances. Such a scenario may put the very future of the business at risk, including any staff.
Like a life insurance policy, in return for paying in a regular monthly premium, correlated to the size of the outstanding debt, business loan protection is a product that will pay out the value of the debts allowing the business to repay any corporate loans, mortgages or overdrafts. The life cover can also repay any loans made by the business owners or company directors to the company and not just external creditors.
As some business loans may also include an element of personal liability, it is a vital insurance to protect individual shareholders from any losses.
Does Our Company Need Corporate Loan Insurance?
It is not a legal requirement to protect a business from outstanding financial obligations. Now, however, many corporate lenders will insist that there is the ability to repay loans if there is an incident by having loan insurance in place.
If a director or shareholder is personally responsible for repaying a business loan, their death or incapacitation can result in the creditor calling in the full amount owed straight away. It means that a business without protection may risk being declared as an unviable or insolvent entity if a director or shareholder dies and the loan cannot get repaid.
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How Much Cover Does Your Business Need?
The level of cover required should correlate to the outstanding loan balance and is known as the sum assured. The lump sum that will be received to pay off creditors should the owner or business partner die will be represented in the monthly or annual premium paid throughout the fixed term policy.
How Much Will A Business Loan Protection Policy Cost?
The cost of taking out corporate loan protection depends on several factors taken into consideration by the insurer, including the following:
- What is the health of the person to be insured?
- Do they have any underlying medical conditions?
- Do they have a healthy lifestyle exercising and not drinking excessively or smoking?
- How old are they at the policy outset?
- Is the job they do considered risky or is it low risk?
The cost for a 36-year old business owner applying for a £140,000 business loan over a fixed term period of 10 years with decreasing cover is around £6 a month. For a 50-year old, the cost to put the same policy in place will be over £25 a month.
Insurance Hero is an independent broker who can provide a competitive quote closely aligned to the needs of you and your business. Contact our sales team today on 0203 129 88 66 for a fast and free quote.
What is The Tax Treatment of Business Loan Protection Insurance?
HMRC does not consider any payout from a business loan policy as benefiting a business as any payout money goes directly to creditors. Instead, HMRC considers any premiums paid into a policy as an inclusive part of raising finance. It means that premiums are not considered a tax-deductible business expense.
It is only the payout money that is usually tax-free as the ultimate beneficiary of any payment are creditors and not the business itself.
How about Writing the Policy into Trust?
If a request for payout from a business loan policy takes place, the payout must go directly to any creditors to settle any outstanding obligations. If a policy writes into trust, this adds a layer of complexity as a trust is a separate legal entity to the underlying business. If you wrote a policy into trust, it would only create unnecessary complexity when the aim is to pay lenders and settle any debt.
Further Benefits of Business Loan Protection Cover
As well as a financial payout when you most need it, a comprehensive business loan cover should also include the following key features:
- Sessions with a physiotherapist or acupuncture professional
- Stress-related advice and counselling through a dedicated helpline
- Full 24/7 access to a GP by phone or video consultation
- An ability to increase or decrease the level of cover
- Switching the frequency of premiums between monthly and annual payments
- Reducing or extending the cover period
- Removing the insured person from a policy
Increasing or Decreasing Cover
Increasing or decreasing the level of cover can be a useful option depending on the circumstances around any business protection.
Under this cover, premiums and the size of the sum assured will increase in line with the UK Government’s Consumer Price Index (CPI). It is a benchmark which indicates the change in the cost of living and premiums under a policy with increasing cover will rise accordingly.
The premiums and the sum assured will reduce over the fixed-term duration of a policy. Decreasing cover is often associated with a commercial mortgage where the size of the borrowing decreases throughout the loan, meaning the level of cover also needs to drop.
The level of insurance cover remains unchanged for the duration of the fixed term policy.
What about Critical Illness?
Most providers will allow the option to include critical illness cover as part of overall business loan insurance products. It may be an available option or be added at no extra cost. Critical illness cover is also called disability insurance by some insurers, so it is useful to be aware of differing terminology.
Critical illness is essential as death is not always the outcome that will stop business owners being able to run a business. Critical illness covers the diagnosis of a disease where the insured will not be able to work with a payment forthcoming should the person survive 14 days from diagnosis.
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Critical illness can include qualifying diseases including but not limited to, the following:
- Kidney failure
- Liver failure
- Structural heart surgery
- Multiple sclerosis
- Loss of hand or foot
- Motor neurone disease
- A stroke
- Parkinson’s disease
- Heart attack
- Certain types of cancer
- Motor neurone disease
- Heart valve replacement or repair
- Coronary artery by-pass grafts
- Benign spinal cord tumour
- Progressive supranuclear palsy
- Traumatic brain injury
How Do I Find the Best Rates and Deals?
It is essential to shop around when considering insurance cover. Rather than going directly to an insurer, instead, an independent broker that does not tie to a particular service will do the heavy lifting and search the market and multiple insurers getting the best advice and quotes.
Insurance Hero has experience in providing business protection insurance to different sizes of business. As an independent broker, we do not tie to any insurance provider. We have relationships with all the top insurers including Zurich, Aviva, Aegon, LV and L&G to make sure we offer not only a competitive but also a quote closely tailored to the needs of your business.
For a fast and free quote contact our professional but friendly team of advisers at Insurance Hero on 0203 129 88 66 today. We want to assist you in protecting your company and staff by providing you with peace of mind if something happens to you.
Other Types of Related Insurance
Business loan protection insurance is a critical cover to protect the interests of your business, but did you know that different types of related insurance cover can protect your company:
Keyman insurance provides cover should a key member of staff die, or if critically ill no longer be able to work.
Keyman insurance is valid for all sizes of business, from sole traders through to medium or large limited companies. It works to maintain the viability of the business should something happen to the critical person, whether that is the founder or an essential sales manager.
In return for providing monthly premiums, a lump sum payout would be due which may be used to maintain the supply chain if costs go up, providing a financial buffer against a fall in profits or the price to recruit and train a replacement employee.
Shareholder protection insurance
Shareholder protection insurance works by providing other shareholders of a company with lump sum cash to cover buying the shares of a dead shareholder. It is an essential type of insurance if the existing shareholders need to maintain control so that the organisation can continue to trade profitably without outside interference.
Relevant Life insurance
Any payout from a Relevant life insurance policy differs as it is for the benefit of the insured member of staff and not the business itself. In the event of the death of the insured, dependents will receive financial payment. Relevant life insurance is considered tax-efficient insurance as UK corporate relief applies both to the premiums paid and the payout.
What happens if I die before the policy sets up?
Most insurers will automatically include an accidental death benefit should you die after an application submission but before the policy is in place. Insurers will usually payout for up to 90 days from the time a business loan protection application has been received.
A similar type of cover called immediate cover similarly allowing protection before a policy is fully set up and is typically for up to 60 days.
Can I change my policy once it is in place?
Insurers will typically include the ability to change your policy – known as a guaranteed insurability option as part of the cover.
It means that insurance cover can increase if there is a requirement to add to an existing business loan without requiring further medical evidence.