Affordable Business Loan Protection with Disability Insurance for Canadians
Did you know that Life insurance can cover an individual’s financial needs due to disability? Business loan protection is a type of insurance designed to provide financial support to policyholders. It protects loan payments and prevents the insured from defaulting.
Visit Save Corporation Tax to find out how business loan protection insurance can help you.
How Life Insurance Can Provide You and Your Loved Ones Loan Protection
Life insurance also helps pay-off any outstanding debt, especially if a key person in the company unexpectedly dies. This includes commercial loans, venture capital funding, and commercial mortgages. Hence, business owners should get a business loan insurance to protect the company from financial risks.
It’s easier to understand how business loan protection with life insurance works if you also have a clear idea of what a business loan is. A business loan is a sum of money lent for business use including cash loans, overdrafts, and commercial mortgages. Meanwhile, the monthly payments and interest rates remain fixed throughout the loan term.
A lot of small to medium businesses often take out business loans when starting their business. Some businesses also get loans to help their business stay afloat during difficult times to be able to cover operational costs. Business loan protection can help the company financially, especially when the business owner is not present anymore.
How Does Business Loan Insurance Work?
When a business owner, partner or key person dies or becomes seriously ill, the company may be left with financial implications that can ruin the business. It can even cost more if your company does not have a business loan protection insurance. The remaining individuals involved in the company are the ones who have to face the difficulties of repaying the loans. A business loan protection insurance can help the remaining individuals deal with the debt.
This company takes out a policy that has the same amount and length of any outstanding loan. If the insured dies within the term of the policy, the insurance company will pay the amount equal to the outstanding loan. Most business loan protection insurance allows you to choose a plan with life insurance, life insurance with disability coverage, and life insurance with critical illness.
What Does Business Loan Protection Cover?
This insurance protects a key person in the company against risks. Business loan protection covers life insurance which pays out a lump sum if a key person passes away or if that person becomes terminally ill. Critical illness insurance can be added on top of a business loan protection to protect the insures in case a key person becomes terminally ill or develops a heart attack, stroke or cancer depending on the policy’s term.
The individuals who play a role when repaying outstanding loans can be covered in case one of them dies or gets critically ill. The insured will receive an early payout. A terminal illness is usually defined as having only less than a year to live.
Do Businesses Need Corporate Loan Insurance?
A business loan protection insurance may not be legally required but a lot of venture capital firms and business lenders often want assurance that they would be able to repay a loan in case a key person in the company dies or becomes seriously sick. Most lenders require proof that you have sufficient protection in place before they can release funds. Therefore, a life insurance policy that covers the outstanding loan should be provided by the company.
A business loan without any insurance increases your company’s risk of being declared as insolvent if the business owner’s death cannot repay the outstanding loan.
Businesses without a loan protection insurance are expected to fail within a year and a half following the key person’s death or illness. Therefore, getting a business loan protection insurance should be on the list of priorities of business owners.
How Business Loan Protection Helps Businesses
If a business partner or key employee dies, becomes disabled due to illness or injury or develops a critical illness, a business loan insurance policy can help make the necessary payments to reduce the balance of a loan. It can significantly help businesses go back to its normal activities and prevent financial issues by having a constant stream of cash flow. This policy can also help protect your personal investment and assets.
The Benefits
Some companies think they have enough savings or investments to cover expenses but when setbacks and financial risks become unavoidable, they suddenly find their companies in a difficult situation. The main objective of purchasing a business loan protection insurance policy is to ensure that your business will survive in case a key person dies or suffers from critical illness. Here are some of the reasons why employers should significantly consider getting insured.
- Peace of mind — Business owners, stakeholders, and employees all have the same concern which is to have a stable job and income. Having an insurance in place will help give everyone peace of mind and can even boost the morale of everyone involved in the company. It also adds more value to an employee and improves staff retention.
- Reassurance — Whenever business loans are protected by an insurance plan, the key persons can feel reassured at all times that the business will endure even if the company finds itself in a difficult position. It gives assurance that their financial situation is protected from risks.
- Protects the key person’s families — When a key person dies, it can be a huge blow to the person’s family, especially if that individual acts as the breadwinner of the family. Even though it doesn’t replace the insured’s wages, it can prevent financial problems that can affect the families from escalating. If a key person used his house as collateral for the business loan, the family may have to sell the house. Lenders may also demand the individual’s savings to pay for the loan.
To know how this policy can benefit you and your company, visit Save Corporation Tax.
How Much Coverage Does Your Business Need?
The amount of insurance coverage a business needs depends on how much the company owes. However, there are factors to consider that may affect the amount. The type of coverage whether it’s a level of decreasing cover depends on the nature of the loan. A decreasing cover falls beside straightforward capital repayment which becomes zero by the time the loan gets repaid.
A level cover, on the other hand, stays fixed which makes it ideal for interest-only loans wherein the principal capital amount isn’t paid until the latter part of the loan. This type of coverage ensures that the outstanding balance is covered until the end of the term.
In some cases, if there is more than one person responsible for paying the loan, the loan agreement determines how it should be held. The loan structure can have an effect on the type of insurance needed. If the parties involved are jointly liable, a single policy written on a joint life may be possible. If there are multiple individuals responsible for repaying the loan, it might be better to purchase individual policies that cover individual liabilities.
How Much Does the Insurance Cost?
A business loan insurance depends largely on the amount of coverage you need. Each person involved should be medically underwritten to qualify for business loan protection insurance. The factors that help determine include the insured’s age, health and medical conditions, lifestyle, and job. Lifestyle habits include smoking and drinking while the occupations that are more hazardous tend to cost more.
Is it Tax Deductible?
The insurance premiums paid from the business loan protection insurance are not typically tax-deductible. Instead, the premiums are treated as part of the cost of the capital. Therefore, once the benefit is claimed, the payout received covering the outstanding debt is usually tax-free, especially since it benefits the lender and not the business.
Does it Cover Sickness and Accidents?
A business loan protection insurance does not cover less serious health conditions including mental health issues or musculoskeletal disorders. If the person insured is unable to work and earn income due to injury or illness, it can negatively affect the finances of your business.
To protect the company from this risk, a business owner can consider getting income protection to provide a flow of income even when the key person is unable to work due to an accident or illness. What makes income protection different from critical illness is that it can also help protect the insured’s personal finances and also provide loan coverage.
Bottom Line
Now that you understand how a business loan protection works and how it can benefit your company, it is practical to consider getting this insurance for your business. This type of insurance can cover debts and loans if the insured is unable to pay the lender due to due to disability, illness, or unemployment. The costs for this policy can depend on the age, lifestyle, and other factors such as amount of outstanding debt or credit history.
