What is business loan protection?
Business loan protection is a life insurance policy arranged to cover the outstanding balance of a business loan if a key director or owner dies or suffers a serious illness. It ensures the loan doesn't fall on the shoulders of surviving directors or guarantors.
Who needs business loan protection?
- Directors who have personally guaranteed business loans
- Business partners with shared debt obligations
- Companies with significant outstanding commercial mortgages or facilities
- Small businesses where lenders require personal guarantees
What types of loan can be covered?
- Business loans and overdrafts
- Commercial mortgages
- Director's loan accounts
- Asset finance and leasing agreements
- Investor loans
Level vs decreasing cover
For interest-only loans, level cover maintains the same payout throughout the term. For repayment loans, decreasing cover reduces alongside the loan balance — and is usually cheaper.
Is business loan protection tax-deductible?
It depends on how the policy is structured. HMRC's rules vary depending on whether the policy is protecting the business against a capital or trading loss. Specialist tax advice is always recommended.
Frequently Asked Questions
Typically the business. Premiums are paid by the company, and any payout is made to the company to repay the outstanding loan.
It's important to review the policy whenever the loan balance changes significantly. Most policies allow adjustments during the term.
Yes — many policies include both life cover and critical illness cover, so the loan is protected whether the key person dies or suffers a serious diagnosis.