Your business may have borrowed money for a number of reasons, however, you must decide whether the debt is protected or not. Indeed ,your bank may have insisted that the loan is protected but remember - just because the bank insist that you protect the loan - this does not mean that you have to take the insurance out with them!
Type of Loan
There are essentially two forms of debt; term loans and overdrafts. Term loans are virtually always written on a capital and interest repayment basis over terms ranging from three to fifteen years. Overdrafts however are more flexible and are usually used to provide working capital to a business, despite the apparent short term nature of this form of finance they tend to continue indefinitely.
Type of Cover
Once you have made the decision to protect the loan then you must consider which the most appropriate form of cover is. For most term loans a decreasing protection policy will be the most appropriate. Overdrafts are a bit harder to categorise. Should the cover be at the overdraft limit or for a lower amount representing the normal amount overdrawn? The almost open-ended nature of overdrafts also presents difficulty when deciding on the term of the policy. Depending upon individual circumstances, level term, renewable term or flexible whole of life assurance could be most suitable. We can provide you with advice on the most appropriate type of loan protection.
Who to Insure
The life or lives insured should be those within the business whose death would affect the business’ ability to repay the loan. The directors or partners are obvious candidates as are any senior managers or employees with special skills. The loan agreement may specify who is to be covered and for how much, however, this is not always the case.
Tax Position
We will help you consider the tax implications of any protection you effect and we will work with your accountant to ensure that policies are set up in the most tax efficient way possible.
