Many of our clients run well-established and profitable businesses, and borrowing can play an advantageous part in the growth and lifecycle of any business. However, it is often the case that the ability of the business to continue to operate, make a profit and service the debt rests heavily on the shoulders of a very small number of key personnel-sometimes only one individual.

The death or serious illness of a business owner or anyone who plays a ‘key’ role could be catastrophic for the company, particularly where there is borrowing. This poses a serious risk for both the company and the lender. The business may struggle to meet the loan repayments whilst a replacement is recruited and trained. Worst case scenario, the lender may be uneasy about the on-going ability to service the debt and require immediate settlement.

The consequences could well be that the business cannot continue to trade, or has to be sold off, just to repay the loan.

By taking out Business Loan protection the business will be able to pay off the loan with the proceeds of the policy, thus removing this pressure and ensuring that the business is able to continue.

Types of Business Loan Insurance

It may be that the lender will require the loan to be repaid on the death of a ‘key person’, and will require insurance to be put in place as a formal condition of the loan agreement. However many businesses report that this subject was not mentioned by their lender until there was a problem.

It is always advisable to take out insurance to cover any loan. It is also important to note that the lending may be subject to a director’s personal guarantee, or the lender may have taken a charge over the property- further resulting in significant financial pressure if protection is not in place.

Business loan protection will typically provide a lump sum in the event of the death or ‘serious’ illness of the life assured, which can then be used to repay the borrowing.

Protection is tailored to provide a suitable sum assured, decreasing in line with a loan repayment schedule. Alternatively, Level Term protection provides a fixed sum which may also be suitable, depending upon overall circumstances and objectives.