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Business Loan Disability Insurance

In some point in our professional careers, many individuals come across an opportunity to strike out on their own to open a new venture and become self-employed. Others may come across a situation where there is an opportunity to buy into an existing business as a partner. In either case, especially in today’s economy, many of us do not have the personal funds to initiate a business start-up or to buy in as a partner. For the vast majority, we must look into taking out a business loan to meet the financial requirements of tackling such an endeavor. 

As is true with many lending institutions today, there are requirements that must be met that will insure that the lender will receive their money back in the event that an individual passes away. This is typically taken care of with a simple term life insurance policy, since it is the cheapest avenue. Many of these same institutions have come to realize that an individual is more likely to become disabled over a period of time than they are to pass away. As such, many lenders are now also requiring that an individual insure their loan payments in the event that they become disabled and cannot meet their loan payment obligations. 

In situations where a disability insurance policy is required, many people simply purchase a disability income insurance or business overhead insurance 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 for the individual purchasing coverage? 

Disability income 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 disability insurance 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 for your business to remain operational while you are incapacitated, so that you have a business to return to when and if you are able. Between these two insurance plans, for most people I would say that the business overhead insurance policy is generally less expensive and a slightly better option than a disability income insurance policy to satisfying a loan requirement. But is it the best answer? 

Guardian Life Insurance Company of America has provided a better solution. Enter the Business Reducing Term (BRT) insurance policy, offered exclusively through Guardian1. 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. As such, the policy can insure the exact monthly loan payments (principal and interest), and can insure the exact loan term (ex. 5 years, 7 years, 10 years, etc). 

If you are in the process of or are contemplating taking out a business loan, it is extremely important that you understand everything that is going to be required of you by your lending institution. As I mentioned previously, most lenders will require some form of a life insurance 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. It is extremely important to be aware of all of your options, and that you speak with an agent who specializes in disability insurance policies. He or she can review all of your options with you, and advise you as to the best solution for your particular situation.

1. The Business Reducing Term policy form AH55-A is issued by The Guardian Life Insurance Company of America, New York, NY. This policy form is not available in every state.

2017-51941 Exp. 01/20

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