Personal guarantee insurance explained

Why personal guarantee insurance exists

When a director signs a personal guarantee, they personally promise to repay the company's debt if the business cannot. If the company fails and the guarantee is called in, the lender can pursue the director's own money — savings, and in some cases the family home. That is a serious personal exposure, and personal guarantee insurance (PGI) exists to soften it.

PGI is a policy a director buys to cover part of their liability under a personal guarantee. If the guarantee is enforced, the policy pays out a proportion of the amount demanded, reducing — but rarely eliminating — what the director has to find from their own pocket. It is a way of managing a risk that the director has chosen to take on by signing.

What PGI actually covers

Cover is usually partial, not total. Policies commonly insure a percentage of the guaranteed sum — frequently rising over the first year or two of the policy — so a director remains on the hook for the uninsured slice. The premium is an annual cost, priced on the size of the guarantee and the lender's risk, and it is paid by the director, not the company.

There are conditions and exclusions to read carefully: cover may depend on the guarantee being properly documented, on premiums being maintained, and on the claim arising from genuine business failure rather than excluded circumstances. PGI can be worthwhile insurance for a director who has no choice but to sign — but it is an extra ongoing cost layered on top of the loan itself.

The cheaper answer: no guarantee at all

PGI manages the risk of a personal guarantee. The alternative is not to take that risk in the first place. If a loan is lent to the company alone, with no personal guarantee attached, there is nothing to insure — the director's personal assets are simply never pledged, so the entire question of PGI falls away.

That removes both the exposure and the recurring premium. Instead of paying every year to insure against your own guarantee being called in, you borrow in a way where no guarantee exists. The trade-off is explained in director's guarantee vs company-only borrowing, and the principle behind it in no personal guarantee loans.

Deciding whether you need it

If a lender insists on a personal guarantee, PGI may be a sensible way to cap your downside, and you should weigh the annual premium against the size of the exposure. But if you can borrow company-only, you avoid the cost entirely — which is why directors increasingly look for lenders that do not require a guarantee before reaching for insurance against one.

Credicorp lends to limited companies and takes no personal guarantee, so there is no guarantee to insure. You can read how that works in how no-personal-guarantee lending works, or register to apply. This guide is educational and not financial advice.