Safeguarding your risks: a guide to personal guarantee insurance

Personal guarantee insurance (PGI) is becoming an important option for many business owners. If you’ve been asked to provide a personal guarantee to secure funding for your business, you might be wondering how to protect yourself from the financial risk involved. This guide will answer common questions about PGI, helping you understand its purpose, benefits, and how it can give you peace of mind.

What Is personal guarantee insurance, and how does it work?

Personal guarantee insurance is a type of cover designed to protect you if your business defaults on a loan or other financial obligations that you’ve personally guaranteed. When you sign a personal guarantee, you agree to cover the debt with your personal assets if the business can’t pay. PGI steps in to cover a percentage of the outstanding debt, reducing your financial exposure.

This insurance typically covers between 60% to 80% of the guaranteed amount, depending on the policy. It’s not a complete safety net, but it can soften the blow if things go wrong.

Who needs personal guarantee insurance, and why is it important?

PGI is particularly useful for business owners who are required to sign personal guarantees to secure loans, leases, or credit lines. It’s especially important for small business owners, directors, or partners who might have personal assets at risk, like their home or savings.

This insurance is important because it can protect your personal finances if your business faces difficulties. Many people underestimate the risk when signing a personal guarantee, but PGI can provide a layer of protection, offering some security for you and your family.

What are the key benefits of having personal guarantee insurance?

The main benefit of PGI is the financial protection it offers. If your business struggles and can’t repay its debts, the insurance can cover a significant portion of the personal liability, reducing the financial burden on you.

PGI also provides peace of mind, allowing you to make business decisions without the constant worry of losing personal assets. It can also give you more confidence when negotiating with lenders, knowing you have some protection in place.

What does personal guarantee insurance typically cover, and what are its limitations?

PGI usually covers a portion of the outstanding debt that you’ve personally guaranteed, typically between 60% and 80%. The exact percentage depends on the policy and the insurer. The cover applies to debts like business loans, leases, or trade credit.

However, PGI has its limits. It doesn’t cover 100% of the debt, and there are often conditions you must meet, such as notifying the insurer as soon as your business shows signs of financial trouble. It’s also important to note that PGI usually doesn’t cover debts from fraud or illegal activities.

How much does personal guarantee insurance cost, and what factors influence the premium?

The cost of PGI varies based on several factors, including the size of the guarantee, the financial health of your business, and the percentage of cover you choose. Typically, premiums are a small percentage of the guaranteed amount, but this can add up if the guarantee is large.

Other factors that influence the premium include your business’s industry, credit history, and the insurer’s assessment of the risk involved. It’s worth shopping around and comparing quotes to find a policy that suits your needs and budget.

How do you apply for personal guarantee insurance, and what should you consider when choosing a policy?

Applying for PGI is usually straightforward and often can be purchased through a reputable broker. You’ll need to provide information about your business, the personal guarantee you’re covering, and any existing debts. The insurer will assess the risk and offer a quote based on this information.

When choosing a policy, consider the percentage of cover offered, the exclusions, and any conditions attached to the policy. It’s also wise to check the insurer’s reputation and customer service record. Make sure you fully understand the policy terms before signing up, so there are no surprises if you ever need to make a claim.

 Last word

Personal guarantee insurance can be a valuable safety net for business owners who want to protect their personal assets. While it’s not a full guarantee against loss, it can reduce the financial impact if your business faces tough times. If you’re considering PGI, take the time to explore your options and choose a policy that fits your needs.

If you think personal guarantee insurance might be right for you or you want to learn more about how it works, please contact Stef Radymski or Nilima Begum. Our team is ready to help you find the right cover and protect what matters most.