Business Loan Protection
For many small to medium size business owners, the payments on a business loan may be one of their largest financial obligations each month. Even if a lender doesn’t require disability insurance, which they often do, business owners should consider using a business insurance product specifically designed to alleviate the financial risk of a disability.
Business Loan Protection is a rider which can be added onto some Business Overhead Expense policies or sold on a stand-alone basis. It is designed to ensure a business owner can repay loans taken out for business purposes in the event the owner is too sick or hurt to work. It can be added as part of a new loan or taken out to protect current obligations.
A business owner decides they would like to protect a loan they are making payments on. They continue to make the payments to the originating financial institution. In addition, they purchase the Business Loan Protection from an insurance carrier to cover the amount and duration of the monthly payments.
If the borrower becomes too sick or hurt to work, the insurance company provides benefits to the business owner to pay back the financial institution. In some cases, the payments can be set up to be made directly to the financial institution.
A business owner can purchase multiple coverages for multiple loans, with different payment amounts and/or durations.
Business Loan Protection can cover a variety of loans including (1) to purchase or expand a practice or business, (2) the purchase of expensive equipment, (3) facility renovations, and/ or (4) an increase in working capital or build-up of inventory.
Unfortunately, the most common solution is the assignment of personal disability benefits to the lender. A business owner should never assign personal benefits to satisfy a loan agreement. Doing so places his or her own family’s financial security in jeopardy.
Another frequent solution is the use of a Business Overhead Expense (BOE) policy. Business Overhead Expenses policies were never designed to handle the long-term obligations of a business. BOE policies have a maximum benefit period of 12 to 24 months, which is usually not enough for business loans which last five to ten years.
The best solution to protect a business owners is to purchase Business Loan Protection designed to meet the loan obligation. Properly structured, Business Loan Protection coverage provides 100% protection for both principal and interest.