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Page written by Chris Godfrey. Last reviewed on September 21, 2024. Next review due April 6, 2025.
Almost every UK business will need to borrow money at some point in its life. Unfortunately, unless your business has large assets, the lender will usually look to the business owner or directors to provide security for the funds. This means giving a personal guarantee and putting the owner’s or the director’s personal assets at risk, but without this kind of collateral, many lenders won’t make the loan.
Fortunately, this is where personal guarantee insurance (PGI) can provide a win/win situation; covering a large percentage of the loan to reduce business owner risk, and making lenders more comfortable by delivering an extra financial backstop in case things should go wrong.
Personal guarantee insurance is a form of business insurance designed to protect business owners who must provide a personal guarantee to the lender when their company takes out a business loan.
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 portion of this liability, reducing risk to the business owner’s personal wealth.
| Coverage | 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. |
| Flexibility | 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. |
| Cost | 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. |
| Making a claim | 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. |
| Benefit to lenders | 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. |
| Limitations and exclusions | No 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 can deliver significant advantages to both individuals and businesses:
| Coverage | 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. |
| Flexibility | 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. |
| Cost | 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. |
| Making a claim | 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. |
| Benefit to lenders | 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. |
| Limitations and exclusions | No insurance policy covers everything; PGI will have certain exclusions and limitations. It's important to read your policy carefully and to understand exactly what’s covered and what isn't. |
Ten reasons why personal guarantee insurance may be right for you:
Personal guarantee insurance will typically protect 60% to 80% of the loan value. However, depending on the type of loan and the financial strength of the business, some insurers may offer higher cover.
Personal guarantee insurance is applied to business loans taken out by the company. The organisation is therefore responsible for paying the insurance premiums, not the individual guarantors.
The cost of PGI is determined by a range of variable factors – the sum insured, the term of the loan, the credit ratings of the guarantors, and the financial health of the business.
It’s as simple as filling out an online form, receiving a quote, then accepting the premium to collect your policy.
Or, if you prefer more individual support…
Contact Swoop to discuss your personal guarantee insurance needs. Never put your hard-earned wealth on the line again.
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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