Many businesses take out loans to start up a company or to expand their operation, and their ability to repay the loan often rests on a few key people. A business loan insurance plan can help to pay an outstanding loan if any of those key people were to become critically ill or die.
What a business loan insurance plan can cover
Most types of business loan can be protected, including:
- Commercial loans and mortgages
- Venture capital loans
- Director’s loans
- Personal guarantees
Issues to consider
If an overdraft, loan or commercial mortgage is unable to be paid, does it have serious implication for your business?
Director loans accounts should be repaid on death – where will this money come from?
Before you arrange business loan protection cover, it’s important to understand each individual’s liability. Under the terms of a loan, owners may be jointly liable, severally liable, or jointly and severally liable for the repayment of the loan.
Once this information is clear, you can set up a suitable policy for anyone responsible for the repayment of the loan. You can select a decreasing or fixed sum assured, but the term of the cover needs to match the term of the loan.
Making a claim
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. Where the business is a company or Limited Liability Partnership (LLP), the policy can be owned by the business.
The benefits of a business loan insurance plan, includes:
- Peace of mind that if the worst were to happen, the business wouldn’t have to worry about financial difficulties due to loan repayments
- Protection against repayment terms as a result of personal guarantees in the event of the death or incapacitation of an owner
Premiums will generally be paid by the business. As a ‘rule of thumb’ the premiums will not qualify as a deductible business expense for the business.
However, the benefits will not generally be treated as a trading receipt. It’s important that the business gets clarification from the local inspector of taxes, as this may not always be the case.
An Independent Financial Adviser can consider all the options available to you and provide unbiased advice about the whole range of financial products from all the different companies and will only make a recommendation when it is suitable for you.
How Nelsons Can Help
At Nelsons, our expert team of Independent Financial Advisers can provide advice on the options available to an organisation in relation to a business loan insurance plan.
Zoe Till is an Independent Financial Adviser in our Wealth Management team. If you would like any advice in relation to the subjects discussed in this article, please get in touch with Zoe or another member of the team in Derby, Leicester and Nottingham on 0800 024 1976 or via our online form.