Business Loan Protection

Business loan insurance provides a company with a lump sum to repay business loans or mortgages if one of the business’ owners, who are often critical to repayment of company debts, suffers a critical or terminal illness or dies. If a claim is made the funds would either be paid to the business, or the loan provider direct.

Business loan insurance can be taken out on either a ‘level cover’ or ‘decreasing cover’ basis.

Decreasing cover premiums fall in line with the repayment of the loan itself, so as the loan is paid off, the level of business loan insurance will also fall accordingly.

Level cover is normally used for interest-only loans and ensures that the insurance covers the outstanding debt until it is repaid in full at the end of the loan term.

If you’re looking to take out an insurance protection policy for your business loans it is best to discuss your options with an adviser. They will be able to assess the level of debt the business has, the ability for it to be repaid should an owner be unable to work due to critical illness or death, and the level and type of protection you will need.

No, business loan insurance premiums are not normally tax deductible. This is because it is the lender that directly benefits from the policy, not the business. Therefore, it is not considered to be ‘wholly and exclusively’ for the business.

No, business loan insurance is not compulsory in the UK. However, for businesses that heavily rely on business owners or shareholders to be able to meet the repayments of outstanding debts, it is worth considering. Especially if any of these loans have personal guarantees which could leave members of the business financially vulnerable should the business no longer be able to meet the loan repayments.