Payment Protection Insurance

If you have taken out a personal loan in order to start up a business, there is something you can do to help minimise the risk of being unable to make loan repayments, perhaps if you are not able to work due to illness or redundancy. If you are a sole trader it is likely that a serious illness, resulting perhaps in a period of hospitalisation, will leave you unable to run your business for a number of days, weeks, or even months. If this is the case you may have little or no income, and if you do not yet have reliable or consistent cash flow from the business, you may be unable to make repayments on your loan during this time. The added stress of financial hardship may even prolong your recovery, and your bank is sadly unlikely to be sympathetic.

Payment Protection Insurance (PPI) covers you in the event that you are unable to make loan repayments. If you are protected by PPI, your insurance provider will pay your loan repayments whilst you are unable to work. The disadvantage of PPI is that these policies are notoriously expensive and difficult to claim on, and so it is imperative that you read the small print of the insurance agreement in detail.

Your lender may pressurise you to take out this insurance, especially if they offer it themselves, since it often proves very profitable for them. Remember however that it is not compulsory, and you should should shop around to make comparisons as you would for any other insurance quote. A number of institutions offer similar insurance to cover business loans, but these tend to differ widely; ask your lender whether there is a payment protection scheme available for your loan.

For more details of PPI, see Payment Protection Insurance in Personal Loans.