Business Loan Protection Insurance – How much is enough?
It is necessary to determine how much of the business debt should be repaid in order to release the personal guarantee and any other personal securities. A holistic approach should be adopted, considering the overall insurance requirements and funding needs of the business and the owners.
The amount of business loan protection insurance required depends of the type of guarantee signed. Most bank loan or overdraft guarantees are ‘joint and several’. This means that every guarantor is 100% liable for the loan, regardless of their share of the business and regardless of the individual assets each guarantor might have used as security.
In such cases, where the guarantor generates the majority of the business’s income they may want to obtain death cover for the full value of the debt. When the proceeds are received, the guaranteed debts are repaid in full. In the absence of a total repayment, the personal assets or estates of every guarantor could remain vulnerable until the debt is repaid in full.