What is personal guarantee insurance?

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Page written by Chris Godfrey. Last reviewed on September 19, 2024. Next review due April 6, 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.

Personal guarantee insurance 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.

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How does PGI work?

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.

Personal guarantee insurance at a glance

Cover: 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 what’s covered and what isn’t.

Who is personal guarantee insurance for?

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.

When is personal guarantee insurance needed?

You should consider personal guarantee insurance if you are asked by a lender to personally secure a business loan on behalf of your business or if…

You are starting or investing in a business
Expanding your current business
Joining a partnership or becoming a director
Facing uncertain economic conditions
Becoming a limited company
You have significant personal assets

Benefits of personal guarantee insurance

Safeguard personal assets: The most important benefit of PGI is that it can protect your personal assets – your home and/or your savings – from being seized by a lender should your business default on a loan.
Secure peace of mind: Knowing that a large portion of the potential debt is covered by PGI can reduce the stress and worry associated with the potential of a business loan default.
Promote business growth: The risk associated with personal guarantees and the potential to lose your home and savings can put many business owners off the idea of taking on debt to grow their business. However, PGI can make those kind of decisions easier, allowing business owners to take the calculated risks that can help the business grow.
Increase your borrowing power: Lenders may be more willing to grant a loan or offer better terms when they know that a large portion of the debt is backed by PGI, in addition to the personal guarantee.
Reduce the threat of personal bankruptcy: If the worst happens and your business enters insolvency, having PGI could make the difference between personal financial survival and your personal bankruptcy.
Benefit from flexible coverage: Some PGI policies offer flexible coverage, where the sum insured can increase as the business repays its loan and reduces its total outstanding debt.
Assure stakeholders: PGI can instil confidence in investors, lenders, and even key employees, because they know there’s a safety net in place.
Manage risk: Most business owners are used to managing risk, but PGI provides an additional layer of security. Even if the business faces unexpected challenges, the owner’s personal assets have a strong measure of protection.
Cover more than one guarantor: In businesses with multiple partners or directors, if each has provided a personal guarantee, PGI can be taken out by each guarantor, ensuring that all are similarly protected.
Increase your negotiation leverage: If your business faces financial difficulties, having PGI in place may provide leverage when negotiating with your lenders. Because a portion of the debt is fully covered, they may agree to more favourable restructuring terms.

How to apply for PGI

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…

Get started with Swoop

Contact Swoop to discuss your personal guarantee insurance needs. Never put your hard-earned wealth on the line again.

Written by

Chris Godfrey

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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