The Right Way To Cover Business Loans

Business Women shaking handsAt some point, many of us choose to become self-employed. Others have an opportunity to buy into an existing business. In either case, many of us do not have the personal funds to start a business or to buy in as a partner. Most of us take out a business loan to meet the financial requirements. 

Lending institutions have requirements that must be met to ensure that the lender will receive their money back in the event you pass away. Usually, a term life policy since it is the cheapest avenue. These lenders have come to realize that an individual is more likely to become disabled than they are to die. Now they are also requiring that an individual ensure their loan payments in the event that they become disabled. 

In situations where a policy is required, many people buy disability insurance or a business overhead policy to meet this requirement. By doing so, an individual is correct in the fact that either of these insurance policies can satisfy the lender, but are either of these plans the best option?

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Don't Let Your Personal Policy be Used to Pay Back the Bank

Individual disability insurance is designed to replace your personal income (i.e. pay bills: mortgage, electric, food, etc.). This coverage will assist you in continuing to support yourself and your family in the event that you can no longer work due to a sickness or injury. However, if this individual plan is simply purchased to cover your loan obligation, and you become disabled, then your entire disability benefit will go towards paying back your lender, and very little-- if any-- benefit will be left for you to support yourself and those who are depending on you.

Additionally, business overhead insurance is designed to reimburse business expenses in the event that you are unable to work due to an illness or accident. It will allow your business to remain operational while you are incapacitated so that you have a business to return to. Between these two insurance plans, I would say that the business overhead policy is generally less expensive and a slightly better option than a disability income insurance policy for satisfying a loan requirement. 

But is it the best answer? 

Work Team in a meetingThe Guardian Life Insurance Company of America has provided a better solution. Enter the Business Reducing Term (BRT)insurance policy offered exclusively through Guardian. This policy is specifically designed to insure business loans and is typically the least expensive option for an individual to do so. 

By working directly with a loan applicant and the lending institution, Guardian is able to design an insurance policy that contours to the details of each specific loan;

  • The policy can ensure the exact monthly loan payments (principal and interest)
  • It can also ensure the exact loan term (5, 7, 10 years or more.) 

If you are in the process of taking out a business loan, it is important that you understand everything that is going to be required of you by your lending institution. Most lenders will require some form of a life policy to protect your loan. In addition, many are now requiring that some form of disability insurance also be obtained. If this is the case, it is important that you understand all of the options available to you. 

Many insurance agents are not aware that a policy such as Guardian’s Business Reducing Term insurance policy even exists. Many individuals get stuck paying a higher premium because they are uninformed and purchase a policy that is not specifically designed to meet their needs. The BRT policy is typically the least expensive way to satisfy the disability insurance requirement that is established by a lending institution.


Individual disability insurance policy form AH55-A provided by The Guardian Life Insurance Company of America (Guardian), New York, NY. Product provisions and availability may vary by state. In New York: This policy provides disability insurance only. It does not provide basic hospital, basic medical or major medical insurance as defined by the New York State Insurance Department. For policy form AH55-A, the expected benefit ratio is 55%. The expected benefit ratio is the portion of future premiums that the company expects to return as benefits when averaged over all people with this policy form.

Registered Representative of Park Avenue Securities LLC (PAS). Securities products offered through PAS, member FINRA, SIPC. General Agent of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Financial Balance Group, LLC is not an affiliate or subsidiary of PAS or Guardian.

This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice.

2019-90488 Exp: 12/1/21