Are you worried about your personal guarantees, ever thought about personal guarantee insurance.
Personal Guarantees (PG) are the bane of most business owners’ lives and something that they continually ‘moan’ about.
Invariably any form of borrowing above say £5-10,000 from a bank or other financial entity will require further security in the form of a personal guarantee from the business owners and directors.
This is on top of any security that they may also take over the assets of your company. As has been seen over the recent past, it doesn’t take a lot for an excellent business to be hit by unforeseen factors that may result in adverse trading and the lender may demand repayment of its money. You may well be faced with a call on the guarantee that you have given. At that point your personal assets are at risk. Personal Guarantee Insurance is there to meet that claim up to the amount for which you are insured.
Personal Guarantee Insurance
Provides insurance for individuals (usually Directors) who have given a Personal Guarantee (PG) to a lender in respect of the borrowings of their limited company in the event that when called in the company is unable to repay the whole of the borrowings and the PG is called upon.
This type of insurance is the first of its kind to provide protection and advice at the same time. The policy can be purchased at any time either for an existing guarantee or as finance is taken out.
How it works? The guarantor is protected in the event of the company failing to pay back its lender in full. Cover starts at 50% for each guarantor of the amount of the guarantee in year 1, and the percentage increases annually up to 90% in year 5 and subsequent years.
Remember you do not have to cover the full amount of the personal Guarantee that you have signed. You can decide to take some risk yourself and only cover the remaining amount that you feel comfortable with.
Why do I need Personal Guarantee Insurance cover? You don’t, it is a matter of personal risk, but Personal Guarantee Insurance provides financial security and protection from the unforeseen. If you’ve ever given Personal Guarantees for loans, then that guarantee could one day be called upon leading to significant costs to you. This sort of insurance also comes in very useful when directors have different levels of shares in the company and personal wealth.
What does PGI cover? Should your Personal Guarantee be called upon by the Lender, the Insurance will be in place to pay out the indemnified amount which may clear your liability to your Lender in full. How much can I cover? LENGTH OF TIME % COVERED First 3 months 0% Next 9 months 50% Year 2 60% Year 3 70% Year 4 80% Year 5 onwards 90% Multiple Guarantors. PGI is personal to you but other guarantors can take the cover as illustrated.
If there are two guarantors and each takes out PGI then the effective cover will be 90% of the total guarantee in the second year how much does it cost?
The premium is based on 3% per annum of the level of the cover required. There is also a £200 set up fee and insurance premium tax of 6% of the premium.