INSURANCE GUIDE
Personal Guarantee Insurance UK
What personal guarantee insurance covers, when it pays out, and how directors can protect their personal assets.
TL;DR
- Personal guarantee insurance covers the director personally if the company defaults and the lender calls the guarantee.
- It does not prevent the lender calling the guarantee but pays the director the insured amount to meet the call.
- PGI covers a percentage of the guaranteed amount - typically 60-80%, not 100%.
- Pre-existing financial difficulties and deliberate acts are excluded.
What Is a Personal Guarantee?
A personal guarantee is a legal commitment by a director or business owner to repay a company debt personally if the company cannot pay. Banks and commercial lenders routinely require personal guarantees from directors of SMEs as additional security for business loans, invoice finance facilities, and commercial mortgages. Suppliers and landlords also sometimes require personal guarantees from directors of smaller companies. If the company defaults, the lender can pursue the director personally for the full guaranteed amount.
What Personal Guarantee Insurance Covers
Personal guarantee insurance (PGI) covers the director if the company defaults and the lender enforces the guarantee. The insurer pays the director a percentage of the guaranteed amount - typically 60-80% of the guarantee value - enabling them to meet the lender's demand without liquidating personal assets such as their home. The policy pays out when the company is formally insolvent and the guarantee is called by the lender. It does not prevent the guarantee being called but provides funds to meet it.
What PGI Covers and Does Not Cover
PGI covers guarantee calls arising from the company's insolvency due to unforeseen business events - market changes, loss of a major client, key person loss, or economic downturn. It does not cover: deliberate fraud or dishonest acts by the director; guarantees given when the company was already in known financial difficulty; guarantees given on debts taken out primarily to fund personal expenses; or situations where the director has breached their duties to the company.
Protecting the Family Home
The family home is the most common personal asset at risk when a director gives a personal guarantee secured on their property. PGI does not prevent a lender registering a charge on a property as security, but the payout if the guarantee is called can fund the repayment of the secured debt and protect the property from forced sale. PGI is most valuable when the guaranteed amount is significant relative to the director's personal net worth.
Disclaimer
This guide is for general information only and does not constitute financial or insurance advice. Kaeltripton.com is not regulated by the FCA. Always read policy documents in full before purchasing cover.
Frequently Asked Questions
Can I get PGI after I have already signed a personal guarantee?
PGI can be arranged after the guarantee has been given, but it cannot be backdated and will not cover known or existing risks at the time the policy is purchased. Insurers will assess the company's current financial health before issuing a policy. Companies already in financial difficulty are unlikely to be eligible. Arranging PGI at the time the guarantee is given, when the company is in good financial health, is the optimal approach.
Does PGI cover 100% of the personal guarantee?
No. PGI typically covers 60-80% of the guaranteed amount. The percentage covered depends on the insurer, the size of the guarantee, and the risk profile of the company. The director retains some exposure under the remaining percentage, providing an alignment of interest with the insurer. Full 100% cover is generally not available, as it would remove the director's incentive to manage the company's financial risk.
