To begin with what is Personal Guarantee Insurance? Personal Guarantee Insurance (PGI) is an insurance policy which covers individuals who are required to provide Personal Guarantees as part of a lending package.
Generally speaking Personal Guarantees are provided by Directors of Limited companies.
Sole Traders and Partnerships are usually exempt from Personal Guarantees as they are legally obliged to cover the debt themselves
Personal Guarantee Insurance provides cover for either new finance, or for existing lending already in place.
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What is a Personal Guarantee?
Directors or members of a partnership often need funding of one sort or another to fuel growth during critical phases of a business. When a business doesn’t have assets, the common practice amongst financial institutions is to ask for a personal guarantee.
In general terms this legally binding document effectively waives the normal legal separation which exists between company and personal finances. The most common example would be when a director puts his or her family home up as collateral for a business loan. Easy to do during the exciting and optimistic growth phase of a business, it can end up very badly if the business reaches insolvency, and the family house becomes liable.
Advantages of Personal Guarantee Insurance
Taking out personal guarantee insurance means that much of this risk can be minimised. Available to both one or multiple guarantors, it comes with an annual premium and covers up to 80% of the total. Should the worst come to pass, directors can therefore rest comfortably while knowing that their family assets will not be threatened.
One of the newer insurance products on the market is personal guarantee insurance. Currently only offered by one provider, this form of insurance gives personal guarantors substantial piece of mind when it comes to putting their house on the line when obtaining corporate finance.
With this in mind we’ll discuss the merits of taking out personal guarantee insurance and the potential risks if you don’t.
What Percentage Does Personal Guarantee Insurance Cover?
The maximum available is 80%, but during the first year of cover the figure is closer to 60%. Over time, the cover rises as the business proves its stability and the risk for the lender drops.
Who Pays the Insurance Premium?
Since personal guarantee insurance is usually taken to cover commercial finance, the associated costs can be covered by the business. This is a commonly asked question as directors are rightly concerned that they might have to pay the premium themselves, despite the finance being needed for business purposes.
What is the Average Cost ?
Like any insurance, PGI is dependent on multiple factors: the amount of money being guaranteed, the financial situation and stability of the company, the timeframes, and so forth. Premium’s vary from 750 per year, up to around £12,000.
For example an annual premium starts at 1.6% for secured finance, and increase to 2.4% if the loan is unsecured.
Our partner on this is Purbeck Insurance Services, a trading name of Purbeck UK Limited who offer (PGI) on behalf of Markel International, an A-Rated Fortune 500 company. They are directly authorise and regulated by the FCA.
What Types of Finance Can You Use Personal Guarantee Insurance For?
- Asset Finance
- Business Finance
- Business Finance
- Commercial Mortgages
- Credit Cards Overdrafts
- Invoice Finance
- Other Secured Loans
- Property Bridging
- Property Development
- Secured Business Loan
- Secured Peer to Peer Loans
- Trade Finance
- Unsecured Loans
- Unsecured Peer to Peer Loans
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