A personal guarantee makes you, as a director or owner, personally liable for the debt if your company can’t repay it. Personal guarantee insurance (PGI) exists to soften that blow. It’s a specialist policy that pays out a set percentage of the guaranteed amount, typically up to 80%, if your company enters insolvency and the lender calls in your guarantee.
How Personal Guarantees Work (And Why Lenders Ask for Them)
A personal guarantee is a legally binding agreement that you, as a company director, will personally repay a business debt if your limited company can’t meet its obligations. It’s the lender’s safety net, and if the business folds or defaults, they come to you.
For SMEs seeking alternative finance after being turned down by traditional banks, personal guarantees are standard, though some business loans without a personal guarantee do exist. Alternative lenders are willing to look past adverse credit or unconventional business models, but in return, they require additional alignment between the directors and the borrowing business.
What Personal Guarantee Insurance Actually Covers
If your limited company becomes insolvent, through liquidation, administration, or a CVA, and the lender enforces your personal guarantee, the insurance policy pays a set percentage of the guaranteed amount directly to the lender on your behalf. That percentage is typically up to 80% of the guarantee for secured loans. For unsecured loans, coverage usually starts at 60% in the first year, rises to 70% in the second year, and reaches 80% from the third year onward.
The remaining 20% (or more, in early years of an unsecured loan) stays with you. This co-insurance element keeps you invested in the business’s success and keeps premiums manageable. Maximum coverage currently sits at around £750,000 for secured loans and £500,000 for unsecured loans, though figures can vary by provider.
PGI won’t pay out if the company was already insolvent when you took out the policy. It won’t cover situations involving fraud, deliberate asset stripping, or director misconduct. It is also a claims-made policy, meaning coverage only applies while the policy is active.
What Does Personal Guarantee Insurance Cost?
Premiums are calculated as a percentage of the total personal guarantee amount. Annual rates typically fall between 1.6% and 5.2%, depending on several factors: the sector your business operates in, its credit profile, whether the loan is secured or unsecured, the lender’s specific requirements, and applicable Insurance Premium Tax.
To put that in practical terms, on a £200,000 personal guarantee at a 3% annual rate, you’d be looking at roughly £6,000 per year, or around £500 per month. Some providers advertise premiums starting from as little as £50 per month for smaller guarantees.
Who Provides PGI in the UK?
The PGI market in the UK is highly specialised. Purbeck Insurance Services is currently the dominant dedicated provider, underwriting on behalf of Markel International, an A-rated Fortune 500 insurer.
Several commercial finance brokers have partnerships with Purbeck to offer PGI alongside the finance products they arrange. At Funding Bay, we help SMEs raise funding across a range of products, from invoice finance and asset finance to secured and unsecured business loans, working with borrowers whose requirements range from £20k to £25m.
PGI vs Key Person Insurance: Understanding the Difference
Key person insurance is a policy the business takes out on a critical individual, typically a founder or director, whose death or incapacity would seriously harm the company. If that person dies or becomes critically ill, the policy pays out to the business, helping cover lost revenue or outstanding debts.
PGI, by contrast, protects the individual director’s personal assets against a specific liability: the personal guarantee they’ve signed on a business loan.
Where the two overlap is this: if a key person who has signed a personal guarantee dies unexpectedly, the liability does not automatically disappear. The guarantee may still be enforceable against the director’s estate, putting family assets at risk. In that scenario, having both key person insurance (to stabilise the business) and personal guarantee insurance (to protect the individual’s estate) creates a more complete safety net. Neither policy replaces the other.
When Should You Consider PGI?
If your business operates in a volatile sector, such as construction, hospitality, or retail, where insolvency rates run higher than average, the risk profile of your guarantee is elevated. If you’re taking on a larger loan relative to your personal assets, the stakes are higher.
PGI is also beneficial from a cost perspective. Offering a personal guarantee can often unlock more favourable loan terms, including lower interest rates and higher borrowing limits, because you’re reducing the lender’s risk. It’s also worth considering PGI if you already have existing personal guarantees in place. Policies can cover both new and existing guarantees, and you can insure multiple guarantees under a single policy or take out separate policies for each.
How to Get a PGI Policy
Most providers offer online applications where you provide details about yourself, your business, and the guarantee you want to insure. You’ll receive a quote which you can pay either upfront annually or via a monthly direct debit order.
You need to apply while your company is solvent. If the business is already in financial difficulty, premiums will be higher, or cover may be declined altogether. PGI is a proactive protection, not a reactive one.
