Personal Guarantee Insurance

What it is

An insurance policy that covers a proportion of a director's personal liability under a personal guarantee.

A personal guarantee is a promise that if the business can't repay a debt, you will. It's signed personally, it sits outside the protection of limited liability, and it can put your own savings, and in some cases your home, within reach of a funder.

Personal guarantee insurance doesn't remove that liability. It covers an agreed proportion of it, so that if the guarantee is ever called, you aren't carrying the whole amount alone.

What people use it for

Most directors meet this the first time a funder asks for a guarantee on unsecured borrowing. They sign it, because the funding is needed and the request is entirely normal.

It comes up again when someone has several agreements running, each with its own guarantee, and works out that the combined personal exposure is considerably larger than they had realised.

It's also a common step when a business is growing quickly. More funding means more guarantees, and the personal position expands alongside the business without anyone ever deciding that it should.

The usual trigger is a moment of arithmetic. Someone adds up what they've personally guaranteed across every facility and doesn't much like the number.

What it covers

Cover applies to guarantees given on business borrowing. The facilities most often covered:

• Unsecured business loans
• Asset finance and hire purchase agreements
• Invoice finance facilities
• Overdrafts and revolving credit facilities
• Commercial mortgages, with some insurers
• Trade and supplier credit, depending on the insurer

Cover is written as a proportion of the guaranteed amount rather than all of it, and the proportion available often rises the longer a policy runs. Policies are annual and can be adjusted as the business's borrowing changes.

How it works

You take out a policy against a specific guarantee, or against several of them.

The insurer looks at the business, the borrowing and the guarantee itself. The premium reflects the amount covered and the risk profile, and it's paid annually like any other business insurance.

Cover is a proportion of the guaranteed sum rather than all of it. Insurers structure it that way deliberately, because a policy covering the full amount would remove the director's stake in the outcome entirely. The proportion commonly starts lower in the first year and rises across subsequent years the policy is held.

If the business fails and the guarantee is called, you claim against the policy. The insurer pays the covered proportion. You remain responsible for the balance.

Policies usually come with access to business support services, which some directors find as useful as the cover itself, particularly at the point things start to look difficult.

It doesn't cover all of it

Cover is a proportion, not the whole guarantee. If you've signed for a sum and the policy covers part of it, the rest is still yours. Anyone presenting this as removing personal risk is overselling it.

It's an annual cost against a risk you hope never lands

Like any insurance, you may pay for years and never claim. Whether that's worth it depends on the size of your exposure and how much it weighs on you. For a small guarantee it often isn't. For a large one it frequently is.

Read the guarantee before you insure it

Some guarantees are capped, some are unlimited, and some are joint and several with other directors, which means a funder can pursue any one of you for the whole amount. Understanding what you've actually signed comes before deciding whether to insure it.

What's a personal guarantee?

A written promise that if the business can't repay a debt, you'll pay it personally. It sits outside limited liability, which is why it matters. Funders ask for them routinely on unsecured business borrowing, so being asked is normal rather than a red flag.

How much of the guarantee is covered?

A proportion rather than the full amount, and it varies by insurer and by how long the policy has been held. The proportion commonly increases across the first few years. We'll set out what a specific policy would cover before you commit to it.

Is it worth it for a small guarantee?

Often not, and we'll say so. The premium against a modest exposure can be hard to justify. The case gets stronger as the guaranteed amount rises, or where you've several guarantees running at once and the combined figure is significant.

What if I have already signed the guarantee?

You can usually still insure it. Cover isn't limited to new agreements. If you've guarantees in place across several facilities, it's worth listing them all, because the combined exposure is often larger than directors expect.

Does having a policy affect my borrowing?

It doesn't change the guarantee itself or how a funder assesses you. The guarantee remains in place and enforceable. What changes is what happens to you personally if it's ever called. Some directors find that makes them more comfortable taking on funding they would otherwise have declined.