Business Loan Insurance

What is Business Loan Insurance and What Does it Cover?

• Business Loan Protection is a form of Life Insurance which pays off outstanding corporate debt should a person key to the business pass away.
• These debts might include company overdrafts, commercial loans, venture capital funding and commercial mortgages.
• Include Critical Illness Cover to protect against the risk of suffering a serious illness such as cancer, heart attack or stroke.

What Does Business Loan Protection Cover?

It is designed to protect against the risk of the death (and potentially a serious illness if you add Critical Illness Insurance) of a key individual who has a level of responsibly for repaying the outstanding debt.

• Life Insurance which will pay out a lump sum if a key person dies or becomes terminally ill.
• Critical Illness Insurance which can be added to the life cover so a claim would be paid if the key person were to suffer one of a number of serious illnesses such as cancer, heart attack or stroke as defined in the policy terms.

Essentially anyone with a part to play in repaying an outstanding company loan can be covered for the remaining amount of debt should they die or become seriously ill.

Most insurers offer terminal illness cover as part of their Life Insurance cover. That means you’ll receive a payout early if you’re diagnosed as terminally ill. (The definition of terminal illness is usually an individual having less than 12 months to live.)

Can Business Loan Insurance Cover Accidents and Sickness?

Although Critical Illness Insurance covers serious illnesses such as cancer, heart attacks and strokes it won’t cover less serious conditions that could nonetheless prevent you from working, such as mental health conditions and musculoskeletal issues.

If you’re a small business or sole trader being unable to work and earn an income due to any illness or injury can be just as devastating to the financial position of your business as a more serious illness.

To protect themselves from a greater range of illnesses that could render them unable to work many directors and small companies turn to Income Protection.

Income Protection provides a continuation of income if you are unable to work due to any accident or sickness. The benefit of Income Protection over Critical Illness is that it can also protect your personal finances as well as covering a business loan if you were to fall ill.

If you are considering Income Protection there are Executive options which can be paid for by the business.

When directors and small businesses are made aware of this type of cover many see it as a more comprehensive form of illness protection than Critical Illness Insurance.

Sam Barr-Worsfold
Business Protection Expert at Drewberry

Do We Need Corporate Loan Insurance?

Although protecting a business loan is not a legal requirement many business lenders and venture capital firms are starting to insist on having some means to repay a loan should a key person die or become seriously ill.

An uninsured business loan runs the risk of your company being declared insolvent after your death if it no longer has viable means to repay the loan.

What’s the Risk of Death?

Based on ONS life expectancy data (2012-14), the chances of a healthy male passing away within the next 10 years are as follows:

How to Set Up Business Loan Insurance

Business Loan Protection works in a similar way to Mortgage Life Insurance but instead of covering a personal debt, such as a mortgage it protects a business debt.

In the event of an accepted claim, the insurer will pay out a cash lump sum into the business to be used to cover your loan. Given the policy is owned by the business it can be a little more complicated because of the tax implications on premiums and potentially the payout if you don’t set it up correctly.

How Much Cover Do I Need for Business Loan Protection Insurance?

The amount of cover you need to insure a business loan will depend obviously on how much the loan is for.

However, there are a couple of variables to consider that will have an impact on the amount required for your loan.

Level or Decreasing Business Loan Insurance?

Whether you need level or decreasing cover will depend on the nature of your loan.

• Decreasing cover
  Falls alongside your straightforward capital repayment debt, reaching zero by the time the loan is repaid.
• Level cover
  The benefit stays fixed over time and is therefore usually used for an interest-only loan, where you don’t repay the principle capital until the end of the loan. Level cover will ensure that the outstanding loan balance will always be covered, right until the end of the loan’s term.

Joint Business Loan Insurance

If there’s more than one person in the business with responsibility for repaying the loan, you’ll have to look at the original loan agreement to determine how the loan is held before you can proceed with getting cover.

Why the structure of your business loan is important…

How your loan is structured may have an effect on the type of insurance you need. If the two parties are jointly liable, it is possible to have a single policy written on a joint life, first death basis.

This will pay out to cover the entire loan if one party to the loan passes away or becomes critically ill.

If multiple key people are responsible for the loan it may sometimes make sense to set-up individual policies to cover the individual liabilities. This is especially true where there’s a wide discrepancy between the ages and health of each party, as well as the percentages of the loan each party is responsible for.

Is Business Loan Insurance the Same as Keyman Insurance?

There are a number of similarities between Business Loan Protection and Keyman Insurance, but they’re not the same product.

Although both cover key individuals within the business, Company Loan Insurance is designed specifically to protect an outstanding loan and those responsible for repaying it.

Where Business Loan Insurance will only cover any outstanding debt, Key Person Insurance may have a higher benefit to cover a wider array of eventualities resulting from the death or critical illness of a key person.

For Keyman Insurance, the key individual or individuals may be insured to protect against loss of:

• Supplier / customer confidence
• Profits
• Important personal or business contacts
• Detailed knowledge of business processes and systems.

It can cover any key individual within the business in a major profit generating role. Unlike with Business Loan Insurance, someone insured under Key Person Cover doesn’t have to be responsible for repaying a loan, just pivotal to the ongoing success of the business.

How Much Does Insurance for a Business Loan Cost?

The cost of Business Loan Protection depends largely on the amount of cover you need and whether the cover needs to be level or decreasing.

As with all Life Insurance written on individual lives, each person will need to be medically underwritten for Company Loan Insurance. This will involve an application where you’ll be asked a series of questions relating to:

• Your health and medical conditions
• Your age
• Your lifestyle (e.g. smoking and drinking habits)
• Your job (riskier occupations tend to cost more to insure).

The below table details the monthly cost of life-only decreasing Business Loan Insurance for a £150,000 business loan to be repaid over 5, 10 and 15 years for a healthy non-smoking individual aged 35, 45 and 55.

How is Business Loan Insurance Taxed?

Given that the insurance is not technically for the benefit of the business (rather it is the lender who will receive the funds and whose capital is at risk), Business Loan Insurance premiums are not typically tax-deductible as a business expense. Rather, premiums are treated as part of the cost of raising capital.

However, should a claim be made the benefit from Business Loan Insurance is not taxable for the business in most cases, as it is destined for the lender and won’t be retained in the company account.

Best UK Business Loan Insurance Companies

It’s always worth comparing quotes from the UK’s leading insurers rather than just taking out the option offered by your lender.

Often these options offered by lenders are restricted and some may even only be offering you a quote from one affiliated insurer. As a result, the cover they recommend can often be significantly more expensive than the most competitive in the market.

Aegon

• Maximum entry age: 83 for Life only / 74 for Life and Critical Illness Cover
• Minimum term: 1 year for Life only / 5 years for Life and Critical Illness Cover
• Maximum term: 50 years
• Maximum cover: No maximum
• Critical illnesses covered: 43, plus 15 additional critical illnesses

AIG

• Maximum entry age: 86 for Life only / 75 for Life and Critical Illness Cover
• Minimum term: 3 years
• Maximum term: 70 years for Life only / 50 years for Critical Illness Cover
• Maximum cover: No maximum
• Critical illnesses covered: 41, plus 10 additional critical illnesses

Aviva

• Maximum entry age: 89 for life only / 64 for Life and Critical Illness Cover
• Minimum term: 1 year
• Maximum term: 50 years
• Maximum cover: No maximum for Level Life / £5 million for increasing life / £3 million for Life and Critical Illness / £2 million for Life and Critical Illness Cover with Total Permanent Disability
• Critical illnesses covered: 41, plus 11 additional critical illnesses

Legal & General

• Maximum entry age: 77 for Increasing Life Insurance / 67 for Life and CIC and Increasing Life and CIC / 74 for Decreasing Life / 64 for Decreasing Life and CIC
• Minimum term: 1 year for Life / 2 years for Increasing Life Insurance and CIC / 5 years or Decreasing Life and CIC
• Maximum term: 50 years for Life only / 40 years with added Critical Illness Cover
• Maximum cover: Unlimited
• Critical illnesses covered: 39, plus 2 additional critical illnesses

Royal London

• Maximum entry age: 88 for Life Cover / 69 for Critical Illness Cover
• Minimum term: 1 year for Life / 5 years for Critical Illness Cover
• Maximum term: 72 years for Life only / 50 years with added Critical Illness Cover
• Maximum cover: No maximum for Life / £3 million for Level Critical Illness Cover / £1.2 million for Increasing Life and Critical Illness Cover
• Critical illnesses covered: 46, plus 14 additional critical illnesses

Scottish Widows

• Maximum entry age: 79 for Life Cover / 64 for Critical Illness Cover
• Minimum term: 1 year for level cover / 3 years for decreasing cover
• Maximum term: 72 years for Life only / 52 years with added Critical Illness Cover
• Maximum cover: £25m for Life / £5 million for Level Critical Illness Cover
• Critical illnesses covered: 49, plus 8 additional critical illnesses

Vitality

• Maximum entry age: 75 for Life Cover / 60 for Serious Illness Cover
• Minimum term: 1 year for Life
• Maximum term: 70 years for Life / 50 years with added Serious Illness Cover
• Maximum cover: £20 million for Life / £3 million for Serious Illness Cover
• Serious illnesses covered: Up to 174

Zurich

• Maximum entry age: 83 for Life Cover / 69 for Critical Illness Cover
• Minimum term:1 year for Life / 5 years for Critical Illness Cover
• Maximum term: 50 years for Life only / 40 years with added Critical Illness Cover
• Maximum cover: Unlimited
• Critical illnesses covered: 40, plus 2 additional critical illnesses

Get Expert Business Loan Insurance Advice

When it comes to making sure your business is protected against the risk of not being able to repay an outstanding debt if a key person passes away or becomes critically ill, Business Loan Protection can ensure the survival of your business.

Considering how complicated corporate finance can be and how important your company is to you it is best you speak to an expert to ensure you have the most suitable cover.

Why Speak to Us?

We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.

• There is no fee for our service
• We are independent and impartial
  Drewberry isn’t tied to any insurance company, so we can provide completely impartial advice to make sure you get the most appropriate policy based solely on your needs.
• We’ve got bargaining power on our side
  This allows us to negotiate better premiums for you than you going direct yourself.
• You’ll speak to a dedicated expert from start to finish
  You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
• Benefit from our 5-star service
  We pride ourselves on providing a 5-star service, as can be seen from our 2274 and growing independent client reviews rating us at 4.92 / 5.
• Benefit from the protection of regulated advice
  You are protected. Where we provide a regulated advice service we are responsible for the policy we set-up for you. Doing it yourself or going direct to an insurer won’t provide this protection, so you won’t benefit from these securities.
• Claims support when you need it the most
  You have support should you need to make a claim. The most important thing when it comes to insurance is that claims are paid and quickly. We are here to support you during the claims process and make sure it’s as smooth and stress free as possible.

If it is all getting a little confusing and you are looking for some help with your Business Loan Insurance then please don’t hesitate to pop us on 02084327333 or email help@drewberry.co.uk.

Tom Conner
Director at Drewberry