I think I need Business Loan Insurance to cover an outstanding commercial loan. However, I’ve been reading up on this protection and I’m not sure whether I need level or decreasing cover. What’s the difference and which one do I need?
Business Loan Insurance pays out if a person key to repaying a corporate debt dies or becomes critically ill. There are two types of Business Loan Protection: decreasing and level cover.
The vast majority of all these policies are decreasing cover. This means the amount the policy will pay out falls over time along with the outstanding loan balance, which also falls as you make repayments.
Straightforward repayment loans are structured in this way. Essentially, if the amount you owe falls over time, you probably require decreasing Business Loan Insurance. This generally works out cheaper because the risk to the insurer falls with time.
The other option is to choose level Business Loan Insurance. This is much less common as it protects interest-only debts, for example an interest-only commercial mortgage.
With such debts, the amount of you owe doesn’t fall over time as you only make interest repayments rather than paying back both interest and capital.
You therefore need Business Loan Insurance to hold steady. That way, it’s always available for the full outstanding balance should you or another person key to repaying the debt pass away during the loan’s term.