Many businesses take out loans to start up a company or to expand their operation. And their ability to repay will often rest with a few key people. Businesses need to make sure they have enough insurance in place to pay an outstanding loan if something happens to those people.
If the business has outstanding borrowings such as a loan, commercial mortgage or a director’s loan, business loan protection can help repay these should one of the business owners die or suffer a critical illness.
Business loan protection is similar to personal life insurance taken out to cover a mortgage. In the majority of cases, your client can protect the full amount with life cover, or life and critical illness cover. When they make a claim, the sum insured is paid to either the business or directly to the lender if the cover has been assigned to them.
Most types of business loan can be protected, including:
Under the terms of a business loan, owners may be jointly liable, severally liable or jointly and severally liable for the repayment of the loan. It is important to understand each individual’s liability before arranging cover for each owner.
You can then set up a life or life and critical illness policy for each person who has guaranteed, or is responsible for, repayment of the loan. The policies can be owned by the business, or by an individual business owner.
You can select a decreasing or fixed value sum assured, but the term of the cover will have to match the term of the loan.
When a claim is made, the proceeds are paid to the policy owner, who can then decide to pay off the loan in full or to continue repayments according to the initial agreement with the lender. They can also assign the policy to the lender, in which case AIG will pay the claim proceeds directly to the lender.
Download the Business Protection Adviser Guide below for help with the following: