Loan Protection

Loan protection protects the business against the risk of a loan to the business needing to be repaid in the event of death or serious illness of a loan guarantor. 

Sometimes lenders may take 3rd party security against these loans and this is often in the form of a second legal charge on the director’s family home. Where this is required, it’s even more important that directors are insured for the full value of the loan in the event of death or serious illness.

Although some lenders will often insist that loan cover is put in place there is growing evidence that this is not always the case and therefore it is always worth clarifying with your business-owning clients what, if any, arrangements have been put in place.

However, in some circumstances directors may have made personal loans to the business using their own personal savings, these are known as ‘director loans’ and require to be re-paid by the business on death. It would be appropriate in these situations to cover the loan by using key person cover taken out by the business on the life of the director.