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NGExpert financial copywriter
Page written by Chris Godfrey. Last reviewed on November 6, 2024. Next review due April 1, 2025.
Personal guarantee insurance (PGI) is a form of business insurance designed to protect business owners and directors who must provide a personal guarantee to the lender when their company takes out a loan.
PGI typically covers a large percentage of the loan, and it pays out if the business defaults on their borrowing or becomes bankrupt. PGI has the double benefit of lowering financial exposure for the guarantors and making lenders more comfortable by providing an extra financial backstop in case things should go wrong.
When a business owner or director personally guarantees a loan, they are offering their private assets as security against the debt. Typically, this will include their home. If the business defaults and cannot repay the debt, the individual is personally responsible for the amount guaranteed and the bank can seize and sell their assets to recover the money. Personal guarantee insurance can cover a large portion of this liability, reducing risk to the business owner’s personal wealth.
PGI will cover a percentage of the personal guarantee, which can range from 60% to 80% or even more, depending on the specific policy terms. If the business defaults, the insurance will pay back this portion of the debt, leaving the guarantor responsible for the balance.
Some PGI policies might allow for increases in coverage (the percentage the policy will pay out) as the business continues to repay its loan and reduce its debt.
The cost of PGI will vary depending on the sum insured, the nature and financial health of the business, and the credit rating of the guarantor.
PGI is not a simple way to walk away from debt. Certain conditions must be met before a claim is paid. For example, the policy might demand that the business must be declared insolvent before a claim can be considered.
PGI is primarily taken out to protect the business owners, but it can also provide some assurance to lenders, as it adds extra security to the loan.
No business insurance policy covers everything, PGI will have certain exclusions and limitations. It is important to read your policy carefully and to understand what’s covered and what’s not.
Personal guarantee insurance is designed to protect business owners, company directors, or any stakeholder who is personally guaranteeing repayment of a loan on behalf of the business.
Business owners should consider personal guarantee insurance if they are asked by a lender to personally secure a business loan on behalf of their business or if…
PGI isn’t available in Canada, but there are other types of insurance that can provide an equal or superior form of protection for your business.
Speak with Swoop’s insurance experts to understand your options and protect your business and yourself from all eventualities.
Written by
Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.
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