Personal Guarantees Can Be Insured
Did you know the UK has the 3rd biggest insurance market in the world? Not bad for a small island.
What it tells us is that we Brits appreciate the value of insurance to protect the things we value most. A 2015 survey from the ABI showed that in the UK;
- In 2015 £40m was paid out each day in motor related claims
- £370m was paid out to travellers in need of assistance
- The UK generated 24% of all EU insurance & pension income
- There are 20.4m contents insurance policies in the UK, 20.1m motor policies and 1.9m private medical policies
All in all we are a nation who understand the value of insurance.
The big unknown is that you can get insurance to cover personal guarantee risk, something available in the UK but (as far as I can see) is not available elsewhere in the world.
What Is Personal Guarantee Insurance?
Or PGI as it is know. It covers the risk of a claim being made on your personal guarantee. There are few commercial lenders who will not ask for a personal guarantee to cover limited company or LLP borrowing. Things like shareholder protection and key-person cover are pretty much understood insurable risks to most business operators, PGI is something very new.
We are not an insurance broker, we do not advise on taking out insurance, however PGI is something that fits a gap we do get asked about an awful lot.
How It Works
This is basic fact only, as always please check the specific terms offered to you, however as a general guide;
- Each PGI case is individually underwritten
- The premiums are around 2% of the insured amount per annum
- The level of pay out increases the longer the policy remains in place, typically rising from a 50% payout in year one to 90% in year four
The idea is that PGI covers another business risk.
It is still something new but given the level of interest surrounding it it appeared sensible to provide a little more detail on the blog about it. If you are borrowing commercially and are asked to provide a personal guarantee then PGI is something you may want to have a look at.
By Dave Farmer
Lime Consultancy are an independent commercial finance broker based in London and Sussex. If you want to know more about PGI then follow the link in the image below, or add your comments above and we will get back to you.