You’ve heard of life insurance and health insurance, and there’s even insurance you can purchase for expensive assets like jewellery and property. But have you ever heard of Business Loan Insurance?
Read on to learn more about Business Loan Insurance and why you should get it when you get business financing from a formal lender.
What is Business Loan Insurance?
Business Loan Insurance is the insurance you get to protect yourself when you get business funding from a formal lender. It is meant to help the business recover from any financial disruptions.
No matter the type and size of the loan you take, unforeseen circumstances can arise that make it difficult for you or your legal heirs to repay the loan you have taken. If you have Business Loan Insurance, you’re protected.
Your business owns the policy and pays the policy premiums, and the lender is the beneficiary of the policy. If something were to happen to you, the insurance policy should kick in and make the loan payments within the terms and limits of your insurance policy.
So, in case of an accident, COVID-related loss, closure, or untimely death of the proprietor, the insurance company will ensure the principal loan amount your borrowed is repaid to the lender. It also protects the collateral you have put up for the loan, allowing the lender to recover their money from your insurer rather than exercising their guarantee and seizing your assets.
What are the benefits of getting business loan insurance?
A predicament can hit your business at any time, and the pandemic has made doing business all the more unpredictable. So, in such times, an insurance policy will help provide the funds needed to:
- Continue operating even if your cash flow is disrupted or you fall ill or pass away.
- Pay off your outstanding business loan balance with the lender.
- Maintain ownership of the assets used as collateral to get the business loan.
- Safeguard your loved ones from the burden of repaying a business loan that was borrowed under very different circumstances and business ownership.
Do I need to get business loan insurance?
Getting Business Loan Insurance is not mandated by the RBI, so you do not need to get it when you borrow business financing from a formal lender. However, it is advised you get it to protect yourself and your loved ones in case of an unexpected unfortunate event out of your control.
A lender’s policy towards Business Loan Insurance also depends on their appetite for risk. Some lenders have large loan books and can give out more risky business loans. Other lenders may be risk-averse and require their borrowers to get business loan insurance along with the loan amount to secure their investment.
Depending on the terms of your insurance, you may be protected against business closure, COVID-induced losses, accidents, or death. In such cases, your business and family are protected, and when all the terms of the insurance are met, the insurance company will cover the unpaid principal amount for you. This way, you are not burdened with paying the EMIs you cannot afford, and your legal heirs do not need to repay the EMIs if you pass away.
How do I decide which insurance company to get business loan insurance from?
The borrower does not have much choice in this matter, as almost all lenders have designated insurance companies that provide insurance to their borrowers. The terms of your insurance policy and the premium will depend on the type of loan you get (unsecured versus secured business loan) and the loan value.
However, if you think the insurance premium your lender is quoting is too high, you can ask them to find an insurance package within your budget. The insurer may be able to create an insurance package for you with adjusted terms and policy coverage that is within your budget.
No matter who you get this insurance from, always remember to read your insurance policy thoroughly, so you know what events your insurance policy covers
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