Business loan protection

Loans, overdrafts and asset finance are often agreed on the strength of the people running the business. If a director or owner dies or becomes seriously ill, the debt is still owed, but the business may be less able to repay it. A lender might review the facility, ask for early repayment or look to any guarantees it holds.

Having cover in place means there is money to repay or reduce the borrowing at a difficult time, so the business can carry on and the people who guaranteed the debt are not left exposed.

• •Amortising loans: the balance falls as instalments are paid, so decreasing cover can follow it down.
• •Overdrafts and revolving facilities: the balance moves up and down, so level cover for the facility limit is usually the safer match.
• •Interest-only loans: the full amount is owed at the end, so level cover for the whole term is normally needed.

The term should run at least as long as the borrowing. Decreasing policies reduce at a rate set by the insurer, which may not match your loan exactly, so it is worth checking and allowing some margin.

Company-owned policies

The company takes out and pays for a policy on the director or owner, and receives the payout. This suits debts that the company itself owes, and works in a similar way to key person insurance, although loan cover and profit cover are usually worth setting up separately.

Personally owned policies

A director or owner takes out cover on their own life, often written in trust, so money is available to their family or estate. This can suit a sole trader's borrowing or a director who has personally guaranteed a company debt.

Personal guarantees

A personal guarantee is a promise to repay the business's debt if the business cannot. Insurance does not automatically release it: the guarantee stays until the lender agrees to release it, and that decision is the lender's. Cover can, however, be arranged so money is there to meet the guarantee if needed.

• •The size of each debt, or the limit on each facility
• •How and when each debt is repaid, which decides between decreasing and level cover
• •Whether you add critical illness cover, which increases the premium
• •The age, health, smoking status and occupation of the person insured
• •Whether one policy or several separate policies best fits the different facilities

Critical illness cover pays only when the illness meets the policy's definition, and definitions vary between insurers. Our guide to why people consider critical illness cover explains what to look for.

List the business's borrowing, including the amount, term, repayment type and any guarantees for each facility. We will recommend cover that fits, compare policies from our panel on benefits and terms as well as price, and suggest a review whenever you borrow more or refinance. If the company also owes money to a director, see our guide to director's loan account protection.