Life insurance to cover business debts
[social_share]Many small business owners are asked by the banks for guarantees on their business debts, and often the family home is used to secure the loan. But this is risky as well as stressful for the family, who are risking not only their loved one but also their home should their main breadwinner should suddenly die.
Life insurance can help with this situation. It is impossible to purchase insurance for most small business loans, which is why banks tend to insist on a guarantee backed by a titled asset such as a house. However it is possible to purchase life insurance which will discharge the loan in the event of the borrower’s death, removing at least that risk of default for the surviving family members.
There are two main sources for life insurance when insuring a loan. The first is life insurance that is provided by the bank or a supplier approved by the bank. While this has the advantage that the bank is in closer contact with the insurer about their needs, it can also be a very expensive option as there is less competition.
Another source is life insurance arranged independently. It is usually a good idea to notify the bank of the insurance as it encourages them to write the loan, although they may prefer to sell the insurance themselves.
When purchasing life insurance to cover a loan, consider coverage for disablement, as well. There are four broad levels of cover for life insurance: death only, the inability to work, the inability to work at the same level, and the inability to work in the same profession. As with most insurance policies, the higher the level of cover requested, the higher the premiums.
Note that the earning capacity of the other partner may allow for lower cover, reducing the premiums.
This type of life insurance can either be bought directly online or through an insurance broker, which may be more expensive but will compare a large number of offers.
