Taking out a business loan is no simple matter. There’s a lot of money on the line, which is why it’s important that your assets are properly protected in the event that your business becomes insolvent.
When signing a personal guarantee in support of the business loan, you can choose to protect yourself by purchasing personal guarantee insurance.
As part of this process, you are well within your rights to make enquiries before you commit to a particular insurer’s policy, but how do you check whether an insurance company is safe and reliable?
Our specialists have put together a series of questions that you can ask your potential personal guarantee insurance provider to ensure that they are the safest and most reliable choice.
What qualifications do you have?
Before taking out personal guarantee insurance, you should check that the company is fully certified to meet your needs.
To understand whether an insurance provider has a good rating, it helps to know who has rated them and how they are rated.
This includes globally recognised rating agencies such as AM Best, S&P and Fitch, who are responsible for carrying out reports on thousands of insurance companies worldwide and are known as the benchmarks for assessing the financial stability and the credit quality of an insurer.
Once an insurance company has achieved a high rating, they must comply to regular assessments with analysts to prove their standards are upheld to maintain the same rating.
If an insurance provider can demonstrate that they hold an A rating from multiple rating agencies, you can be confident in the quality and legitimacy of their services.
Are you authorised by the Prudential Regulatory Authority?
Prudential Regulation is a supervisory branch of the Bank of England. They create the regulations for financial institutions to follow to ensure financial security for those seeking financial services in order to protect consumers and the financial marketplace.
The regulation requires that insurers are controlling risks and maintaining adequate capital to support their insurance policies.
In short, if the insurer you communicate with is authorised by Prudential Regulatory Authority, you can rest assured that they are doing the utmost to maintain financial security.
Are you regulated by the Financial Conduct Authority?
FCA operate independently to the UK Government, their objective is to protect consumers and keep the financial industry stable. FCA authorised companies are required to maintain their integrity by valuing their customer’s financial safety over their own profit.
If a financial firm holds FCA authorisation, it means that you can trust that company to follow the criteria set out by the FCA, to secure a degree of protection for your financial interests.
What is your scope of cover?
Before you sign up to a personal guarantee insurance policy, you should make sure you have a thorough understanding of the scope insurance cover. This is outlined to you during the quote process (for example, in the policy summary, quotation and Insurance Product Information Document).
This includes details such as:
The terms and conditions of your insurance cover (including any exclusions)What the maximum amount of cover available to you is
What are the fixed percentages are that the cover is based on
You might also want to enquire whether you will have access to business support services, such as cash flow and credit control management and how to make use of these services.
These are all details any insurance provider should be comfortable to share with their customer, with maximum clarity of their policies.
What is your renewal policy?
It’s important that you are familiar with the renewal conditions of the insurance policy. If you understand what the requirements of renewal are, and the time frame the policy covers, you will ultimately avoid any unpleasant surprises further down the line.
Do you cover personal guarantees attached to secured and unsecured loans?
It can also be useful to find out how the personal guarantee insurance policy works for different types of loan facilities and the two main types of loan the company can take out are shown below:
Secured loans are usually secured against company assets, meaning that, should your business default on your loan, that the lender has the right to make recoveries against assets owned by the business to recuperate funds. This includes asset finance, commercial mortgages, invoice finance etc.Unsecured loans are where your personal guarantee is the primary security for the business loan and is effectively secured against personal assets. These include credit cards, overdrafts and other short-term working capital loans.
Make sure that you know what sort of loan you’ve taken out, and that your insurance provider is happy covering you as the terms and conditions can vary for the different types of loan facility.
Purbeck Personal Guarantee Insurance
At Purbeck Insurance, we understand the stresses of taking out a business loan; we’re here to help alleviate that stress.
We specialise in personal guarantee insurance, helping to give you peace of mind over your loan. Our policies cover up to 80% of your assets, taking away most of the personal risk of your business investment.
If you need any advice or have any questions about our services. Don’t hesitate to get in touch with a member of our team today.
