Personal Guarantee Insurance at a Glance
- What it covers: A percentage of your personal liability if your business becomes insolvent and the lender calls in your personal guarantee
- Coverage level: 60% in year one, rising to a maximum of 80% as the loan matures
- Cost: Typically 1.8% to 4% of the guaranteed amount per year
- Maximum cover: £400,000 for secured loans; £300,000 for unsecured loans
- Claim trigger: Formal insolvency of the business
- Who pays the premium: Usually the business, not the director personally
- Policy term: Annual, renewable each year
What Is Personal Guarantee Insurance?
When a lender asks you to sign a personal guarantee on a business loan, they are asking you to put your personal assets behind the debt. If the business cannot repay, the lender can pursue your home, your savings, or other property you own.
Personal Guarantee Insurance (PGI) is designed to reduce that personal exposure. If the business enters formal insolvency and the lender calls in the personal guarantee, PGI pays a percentage of the outstanding amount owed, reducing the financial impact on the director.
PGI does not remove the personal guarantee. It sits alongside it as a partial financial buffer.
How Personal Guarantee Insurance Works
What the Policy Covers
PGI covers a percentage of the amount outstanding on the personal guarantee at the time of a claim. The policy pays out when the business enters formal insolvency and the lender enforces the guarantee against the director personally.
The payout reduces the director’s net liability. For example, if you have guaranteed £100,000 and the policy covers 75%, the insurer pays £75,000 towards that liability, leaving the director personally responsible for £25,000.
Some policies also include access to business support services during the loan term, such as cashflow management and business recovery advice, which can help avoid reaching the point of insolvency at all.
How Much of the Personal Guarantee Can Be Covered
Coverage starts at 60% in year one of the policy. This reflects the higher risk to the insurer during the early months of a loan. As the business demonstrates stability and reduces the loan balance, coverage can rise to a maximum of 80%.
The maximum cover amounts are £400,000 for secured loans and £300,000 for unsecured loans. If your personal guarantee exceeds these limits, the remaining exposure above the cap is uninsured.
When Cover Applies
Cover applies only when the business enters formal insolvency: liquidation, administration, or a recognised equivalent. A business that is struggling financially, behind on payments, or in negotiations with creditors does not trigger a claim. Do not assume the policy pays out before that point.
Claims must be notified to the insurer promptly after a relevant trigger event, such as a court judgment against the business or a formal inability to pay debts. Delaying notification can result in a claim being refused.
What Personal Guarantee Insurance Does Not Cover
Common Exclusions
PGI policies typically exclude claims arising from fraud or misrepresentation by the director. If there is evidence the business’s financial position was misrepresented at the time of applying for the loan or the insurance, the policy can be voided.
Pre-existing financial difficulties at the time the policy was taken out are usually excluded. An insurer will not cover a guarantee on a loan where the business was already in serious financial trouble when the policy started.
Guarantees on debts not listed in or covered by the policy schedule are not covered. Make sure the specific loan and guarantee you want insured are explicitly stated in the policy.
Policy Limits
PGI never covers 100% of the guarantee. The uncovered portion of 20% to 40% stays with you personally, regardless of what the insurer pays on the rest. That is not a footnote: it is the core limitation of the product.
Maximum cover is £400,000 for secured loans and £300,000 for unsecured loans. For guarantees above these thresholds, the excess above the cap is entirely the director’s risk.
When a Claim May Be Refused
A claim can be refused if the director failed to notify the insurer of a notifiable event within the required timescale. PGI policies require prompt notification when specific trigger events occur, such as a winding-up petition or a county court judgment against the business.
Claims can also be refused if the circumstances of the insolvency suggest the director acted in a way that contributed to the failure in a manner excluded by the policy. Each refusal situation is assessed on the specific policy wording, so reading the terms carefully before purchasing matters.
Who Should Consider Personal Guarantee Insurance?
Directors Signing a Personal Guarantee
PGI is relevant to any director who has signed, or is about to sign, a personal guarantee on a business loan.
It is most commonly used alongside secured and unsecured business loans, commercial mortgages, asset finance, and invoice finance facilities where the lender requires a personal guarantee as a condition of the loan.
If your business has multiple directors who have each signed a personal guarantee, each guarantor can take out their own PGI policy. Coverage does not need to be consolidated.
When the Personal Risk Is High
PGI makes most sense in three situations: the guaranteed amount is large relative to your personal net worth; the loan is secured against personal assets such as your home; or your business operates in a sector with a meaningful insolvency risk.
If the loss of the guaranteed amount would have a severe impact on your personal financial position, the premium cost of PGI is worth evaluating seriously.
When Insurance May Not Be Worth It
If the guaranteed amount is small relative to your personal assets, the cost of PGI may not justify the cover. A £20,000 guarantee on a business with strong financials, where the director has substantial personal assets, may not warrant paying an annual premium of 1.8% to 4%.
PGI also becomes less relevant as the loan matures and the outstanding balance drops.
Once the remaining guaranteed amount falls to a level you could absorb personally without serious consequence, the annual premium stops earning its keep. Review the policy at each renewal rather than rolling it over automatically.
How Much Does Personal Guarantee Insurance Cost?
Typical Premium Costs
PGI premiums typically range from 1.8% to 4% of the guaranteed amount per year. This is a flat annual rate applied to the guarantee, not the full loan balance.
For example: if you have guaranteed £150,000 and the premium rate is 2.5%, the annual premium is £3,750. That premium is paid each year the policy is renewed.
What Affects the Price
Several factors influence where your premium sits within the 1.8% to 4% range:
- Amount of the guarantee: Larger guarantees attract more scrutiny and can carry higher rates
- Loan type: Secured loans (lower risk to insurer) tend to carry lower premiums than unsecured
- Business financial health: A business with strong accounts and a clean trading history will attract lower premiums than one with recent difficulties
- Creditworthiness of the guarantor: The director’s personal financial position is assessed alongside the business
- Loan term: Longer-term commitments may carry a different pricing structure
Who Pays for the Policy
The business pays the premium in most cases. Because the personal guarantee is associated with a business loan taken for business purposes, the cost of insuring it is typically treated as a business expense rather than a personal one.
This is worth confirming with your accountant, as the tax treatment can vary depending on your business structure and the specific circumstances of the loan.
Pros and Cons of Personal Guarantee Insurance
Advantages
- Reduces the personal financial impact if the business becomes insolvent and the guarantee is called in
- Protects personal assets, including the family home, from lender action
- The premium can be paid by the business rather than the director personally
- Multiple guarantees from different lenders can often be covered under one policy
- Some policies include business support services to help prevent insolvency
- Annual renewal means you can reassess coverage as the loan balance reduces
Disadvantages
- Does not cover 100% of the guarantee: the director remains personally liable for the uncovered portion
- Only pays out at formal insolvency, not at earlier stages of financial difficulty
- Premium adds to the annual cost of the borrowing
- Exclusions for fraud, pre-existing difficulties, and late notification can reduce the practical value of the policy
- Maximum cover limits (£400,000 secured / £300,000 unsecured) may not match the full guarantee on large loans
- Annual renewal required: if you miss a renewal, cover lapses and cannot be backdated
How to Apply for Personal Guarantee Insurance
What Information Insurers Need
To assess a PGI application and provide a quote, insurers typically require:
- The amount of the personal guarantee and the loan it relates to
- The type of finance (secured, unsecured, commercial mortgage, etc.)
- Financial accounts for the business (usually two to three years of accounts)
- Basic information about the director providing the guarantee
- The loan term and repayment structure
When to Apply
Apply for PGI at the same time as, or before, signing the personal guarantee. Applying after signing is possible but the insurer will still assess the financial position at policy inception, and any pre-existing difficulties identified at that point may be excluded from cover.
Applying early also means the policy can be in place from day one of the loan, maximising the period of cover.
What Happens After You Apply
Once the insurer receives your application, they will provide a quote based on the information submitted. If you accept the quote and pay the premium, the insurer issues a certificate of insurance confirming your coverage. Keep this certificate alongside your loan documentation.
Purbeck Insurance Services, our editorial partner on this page, distributes PGI underwritten by Markel International (an A-rated, FCA-authorised insurer) and handles the quote and application process online.
Alternatives to Personal Guarantee Insurance
Negotiating the Guarantee
Not every lender requires a full unlimited personal guarantee. Before signing, it is worth negotiating with the lender to cap the guarantee at a specific amount, to a limited term, or to a specific loan facility rather than all liabilities.
Some lenders will agree to these terms, particularly if the business has a strong track record or the loan is well-secured.
Reducing the Guaranteed Amount
If the lender requires a personal guarantee, you may be able to reduce the guaranteed amount by offering additional security.
Providing a debenture over the business’s assets, a charge over specific property, or additional collateral can reduce the lender’s perceived risk and their need for a full personal guarantee.
Looking for Finance Without a Personal Guarantee
Some finance structures do not require a personal guarantee. Invoice finance and asset-based lending are typically secured against specific business assets rather than the director personally. Revenue-based finance and some fintech lending products do not require guarantees in all cases.
The UK Government’s Growth Guarantee Scheme (successor to CBILS) provides a government-backed guarantee to lenders, which can reduce or remove the lender’s requirement for a director personal guarantee.
Check current eligibility criteria and accredited lenders at british-business-bank.co.uk/finance-hub/growth-guarantee-scheme.
Personal Guarantee Insurance FAQs
How long does personal guarantee insurance last?
PGI is an annual policy that must be renewed each year. Coverage lapses if you do not renew. There is no automatic continuation.
Can you cover multiple personal guarantees on one policy?
Yes. If you have signed more than one personal guarantee across different loan facilities, some insurers, including Purbeck, can include multiple guarantees within a single policy.
What does personal guarantee insurance actually pay out?
It pays a percentage of the amount outstanding on your personal guarantee at the time of a validated claim, subject to the coverage level (60 to 80%) and the maximum cover limits.
The payment is made to reduce your liability to the lender, not paid directly to you as cash.
How much does personal guarantee insurance cost in practice?
Premiums range from 1.8% to 4% of the guaranteed amount per year. A £100,000 guarantee at 2% costs £2,000 per year. The actual rate depends on the loan type, business financial health, and the director’s personal creditworthiness.
What is the maximum coverage amount?
The maximum is £400,000 for secured loans and £300,000 for unsecured loans. If your personal guarantee exceeds these limits, the amount above the cap is not covered by the policy.
When should I make a claim?
As soon as a notifiable event occurs, such as a winding-up petition, a county court judgment against the business, or formal insolvency proceedings.
Delayed notification can result in a claim being refused. Contact your insurer immediately when you become aware of a relevant event.
Methodology: Coverage levels, premium ranges, and maximum cover amounts verified against Purbeck Insurance Services (purbeckinsurance.co.uk) in May 2026.
Purbeck Insurance Services is a trading name of Purbeck UK Limited, distributing PGI underwritten by Markel International (A-rated, FCA authorised and regulated). Verification date: 20 May 2026.