Business Loan Protection

Business loan protection is a form of key person insurance.

A life or life and critical illness policy is taken out against a key person within the business. A person that if they died or were seriously ill, the business ability to pay a loan or other debt could be severely impacted, causing problems for the profitability of the business.

If the key person dies or suffers a critical illness (if this option is chosen), the policy pays out a lump sum that is used to pay off the loan(s)/debts. The policy is usually paid for by the business and any claim proceeds is paid into the business.

The business is not usually able to claim tax relief on the premiums that are paid out. However, the proceeds are typically tax free as they are paid to a lender and not directly of benefit to the business.

Fundamentally, you need to be in a position where the loss of a key person would have an impact on the businesses ability to continue to service debt and remain profitable.

The proceeds of any policy must be used to pay off debts.

Business loan protection policies are usually taken out by a business, paid for by the business and the proceeds are also paid into the business to repay debt.

None of this has any impact on the personal tax of an individual.

The business is not usually able to claim tax relief on the premiums paid, but the proceeds of the policy are received tax free and must be used to pay off a lender.

Policies that are set up for sole traders and partnerships are usually written in trust, but policies for Limited Companies are not.