Cover outstanding business debts from the death of a guarantor

Protect your company’s financial stability by taking out business loan protection today.

What is Business Loan Protection?

The inability to pay off business debts such as loans, commercial mortgages and overdrafts should a key person pass away or suffer a critical illness can lead to financial difficulty for a business. It can even lead to the closure of the business or personal guarantees being called in.

By arranging business loan protection, a sum would be paid to the business in the event of a key person passing away or suffering a critical illness. This will enable the company to repay any debts accounted for by the policy. Some commercial lenders insist business loan protection be in place but even if they don’t, it is something that every business with debts should consider.

You may have given the lender a personal guarantee, such as your home, in case the loans cannot be repaid. It is therefore important to ensure the debts would be paid off if you passed away in order to ensure your family is not affected.

Can I include Critical illness cover?

It is possible for the policy to pay out should you suffer from a critical illness such as cancer, heart attack or stroke. This could allow the business to repay your director’s loan account, which will provide you with additional financial security at a potentially stressful, uncertain time.

A key person suffering a critical illness could easily result in a loss of profits and knowledge within a business. Including critical illness cover could mean that some debts can be repaid, resulting in a reduction of outgoings.

See Key person cover for more information.

Business women discussing business loan cover

Who pays the premiums?

The premiums are paid for by the company and the policy is owned by the company. Therefore in the event of a claim, the proceeds would be paid directly to the business.

The premiums are collected by monthly direct debit from the business’s account. An annual direct debit payment is also usually an option.


Why consider business loan protection?

Following the death of a guarantor or key person, a business can face serious problems with repaying debts. Business loan protection provides financial stability when planning a company’s financial future.

Company Ltd are a small-medium sized business who sell clothes and have 1 shareholder. The company arrange a loan of £100,000 and as there is only 1 shareholder, the lender asks for a personal guarantee, should the debt not be repaid. The shareholder gives his family home as the personal guarantee.

Upon discussion with their adviser, the director concludes that if he were to pass away, the business would have to repay the debt because there would be no way the business could carry on running, therefore leaving his family at risk of having to sell their house. To prevent this situation from possibly occurring the company take out a business loan protection policy with the sum assured matching the amount of money borrowed.

*This is an example scenario only, and not based on a real-life client

Have you made a loan to the business? Did you know these must be repaid to your estate if you pass away?

It is advisable to include any of these Directors Loan Accounts in the sum assured so that the business can repay these debts immediately.

How does business loan protection work?

Business loan protection is a life insurance policy taken out on either a level or decreasing basis. The sum insured must match the outstanding amount borrowed for the debt to be fully cleared. Once the policy is up and running, Future Proof will ensure that it is placed in Trust at no extra cost. The policy would then be owned by the Trustees. When a claim is made the payout can be used to repay the outstanding debt.

Trusts are not regulated by the Financial Conduct Authority