WHY SHOULD YOU OPT FOR BUSINESS LOAN INSURANCE

It is often said, and rightly so, that one should always have a backup plan! In brief, this is what business loan insurance does. This is a protection cover that repays the due loan amount in case something untoward happens to the person taking the loan.

On account of the death of the owner – The livelihood of several employees and family members may depend on a business, however small the enterprise may be. Hence, the running of the business cannot depend on the wellbeing of one person. A top official, the main partner or even the owner may face a critical situation – a severe illness, a crippling accident or even death.

In such a grave condition, this key member may become incapable of contributing to the running of the business, adversely affecting the economy of the company. This may especially be applicable for small enterprises, with limited funds. For the business to continue functioning, remain afloat and avoid bankruptcy, it is required that available funds are utilized for running it and other sources are used to repay any due loan. This repayment is done via loan insurance or loan protection. It ensures that the business remains financially accountable and continues functioning, even in a time of adversity.

In fact, even loan providers, the banks, often assert that the key personnel of an enterprise application for insurance cover so as to repay the loan. Hence, having such a plan provides the desired reassurance to the bank, increasing the credibility of the company and hence the possibility of getting a business loan sanctioned.

THE PROCESS OF BUSINESS LOAN INSURANCE

A business loan protection plan becomes activated when the key functionary of the concerned business faces adversity like illness, accident, disability or even death, rendering the person incapable of contributing effectively to the enterprise.

Upon its activation, some funds are released almost immediately, so as to repay a percentage of the loan amount. Discussions are then held with the lender, explaining the situation, and coming to a more long-term solution and plan with the lender regarding repayment of the loan. The initially released fund may actually be utilized by the business not just for repayment of that particular loan, but also for other credit activities. This decision is taken by the other person running the business. 

The insurance or protection plan for a loan may be taken from the same lender that sanctioned the loan, or any other bank or insurance agency. Moreover, it is often a flexible plan and protection cover can be changed to match changes in loan amounts, i.e. if a larger loan is taken, the cover can also be larger.

The Functioning of business loan insurance

It is important to thoroughly know the steps of applying for, activating and making claims against, a protection plan. This will ensure that all necessary requirements are fulfilled for a seamless and timely claim.

1. First, after making a careful choice, the insurance is applied for
2. The insurance agency or bank assess the applicant and the concerned business for eligibility
3. The terms and conditions of the insurance plan are drawn up and agreed upon
4. The applicant then begins paying the required premium amount at set time intervals
5. In the case when the need arises, a claim is made against the policy
6. The insurance agency assesses the validity and applicability of the claim
7. If found applicable, the agency completes the documentation and releases the relevant loan repayment amount.

THE PROVISIONS IN BUSINESS LOAN INSURANCE

The following three aspects are usually covered by a business loan insurance policy:

1. Life insurance – This is a cover in the event of the death of the owner or key partner of the enterprise. This cover provides a substantial sum of money, so as to fully repay the loan. In case the applicant has a previously known disease, making the person terminally ill with only a short span of time (a few months) left, the insurance cover may even provide some benefits before the imminent death.
2. Coverage for accidents – This is a cover provided in case the key person suffers serious injury due to accident. This policy may either be applied for separately or may be included as part of the life insurance policy. A pre-decided percentage of the loan is repaid by the insurance agency or bank, as a lump sum.
3. Disability coverage – This covers both, physical as well as mental disabilities that are of an extent that prevents the owner from carrying out their roles and responsibilities. Like accidental insurance, this too repays a pre-decided percentage of the loan. In this, a time-limit may also be included.

In all cases, depending on the specific terms and conditions of the policy taken, the loan insurance helps by – 

1. releasing an initial lump sum and 
2. guaranteeing a regular income for a fixed time period.

THE ADVANTAGES OF BUSINESS LOAN INSURANCE

• Reduction in financial risks faced by a business
• Coverage of unforeseen damages
• Family and business partners protected from the financial crisis
• Maintenance of business and prevention of bankruptcy
• Increased reliability and reputation of the enterprise, and credit score
• Tax benefit: With reference to section 80C of the Act, any life insurance cover is eligible for tax benefits. Since business loan insurance provides coverage in the case of death, they automatically fall under the category of life insurance policies and hence the borrower can claim tax exemption against it.

CAUTIONS AND CONSIDERATIONS TO AVAIL A BUSINESS LOAN INSURANCE

Since loan insurances can be of different natures (accidental, death, or disability), with different terms and conditions (about coverage amount, premium cost, time-period, etc.), a judicious choice of correct and applicable protection is necessary. This choice should be based on –the business owner’s or key partner’s health condition, size of the business, fund availability, company reputation, future projections, etc. 

Any policy does come at a cost and this cost varies based on the selection made. Thus, a sensible selection and even a consideration on whether a protection plan is needed, are imperative. Even after an initial decision, all clauses should be carefully studied to check if all requirements are getting fulfilled at a cost that is convenient for the enterprise.

EXCLUDED CAUSES OF DAMAGE AND LOSS

This is another very important consideration when deciding on the type of insurance being applied for. All protection policies, including loan insurances, come with clauses and disclaimers that state which events will not be covered by it. To ensure that a plan is actually useful, own needs and conditions in which the enterprise functions should be carefully matched with the clauses. Following is a list of most common exclusion scenarios in which damages are not covered by a policy:

• Political factors
  • Actions of the government
  • Military activities
  • Related laws and their enforcement
• Enterprise and its components
  • Changes in property size and value
  • Wear and tear of machinery
  • Power failures
  • The explosion within the setup
• Other external factors
  • Damage by nuclear activities
  • Damage by surrounding wildlife
  • Effects of local polluting factors
• Non-adherence to the law by the business owners

HOW DOES FLEXILOANS DIFFER FROM OTHERS IN COST 

Similar to all insurance policies, loan insurances also require payment of the applicable premium amount. This cost is contingent upon the type of protection plan taken, its terms and duration. Similar to other policies, it also takes into consideration the following key factors:

• Age of the applicant – More advanced the age, higher will be the risk and possibility of illness or death and thus, higher will be the premium amount.
• Tenure of policy – For a longer applicable tenure, the premium cost will be higher
• Loan coverage amount – If a higher loan amount is being insured by the policy, the premium will accordingly be higher.

However, we always talk to you personally and offer a customized loan in order to provide the best features at the optimum cost. 

Keeping these points in mind we request you to approach FlexiLoans for a business loan with insurance coverage stay assured of protecting your business under any circumstances.