Term life insurance for entrepreneurs: loans & guarantees
23 Jan 2026
10
Minutes
Katrin Straub
CEO at nextsure
As an entrepreneur, you are responsible for far more than just day-to-day operations. Large loans, personal guarantees, and the livelihoods of your employees depend on you. A term life insurance policy is not an optional luxury here, but the foundation of your business security.
The topic in brief and concise terms
Separate business and personal risks firmly with a sufficiently high coverage amount that explicitly includes loans and guarantees.
Utilise cross-insurance with business partners to avoid the high inheritance tax burden in the event of a claim.
Check Keyman insurance as a business expense to ensure the company's liquidity in the event of losing key personnel.
The Liability Trap: Why Personal Coverage Is Not Enough for Entrepreneurs
Many self-employed individuals and company directors assume that their private term life insurance will cover all gaps in case of emergency. This is often a dangerous misconception. While a private policy is designed to secure the surviving dependents' standard of living, entrepreneurs face complex liability constructions. Especially for sole proprietorships or partnerships, the boundaries between private and business assets can blur. If you have provided a personal guarantee for a business loan, the bank will directly access your estate in the event of death. Without targeted protection, your heirs may have to sell the family home to cover the company's debts.
A look at the GDV 2025 report on life insurance reveals that average insurance sums are often set too low to cover both private and business liabilities. For you as an entrepreneur, this means you need an amount that covers not only your children's education and the mortgage on your home but also ongoing operating costs and outstanding supplier obligations. The legal form of your company plays a crucial role in the tax structuring of the insurance.
Sole Proprietor: Here, the separation between private and business is minimal. The insurance sum must cover all business loans.
GmbH Managing Director: Here, the company itself can be the policyholder (keyman insurance) to secure the company’s liquidity.
GbR Partner: A cross-insurance is advisable here so that the remaining partners can pay out the deceased's share without jeopardising the company.
The term life insurance functions here as a liquidity guarantee. It ensures that the company remains operational while protecting heirs from the demands of banks. At nextsure, we support you in efficiently and digitally mapping these complex requirements so that you can focus on what's important: your business.
Loans and Guarantees: The Bank as an Invisible Partner
Banks almost always require protection against the entrepreneur's death when granting large business loans or investment credits. You are often directly offered residual debt insurance by the credit institution. But beware: These products are often more expensive and less flexible than an independent term life insurance policy. A standalone policy from a provider like nextsure offers you the advantage that the insurance sum does not necessarily have to be tied to the credit progression. You maintain full control over the beneficiaries and tariff design.
It becomes particularly critical with guarantees. If you have signed a self-liability guarantee, it becomes a liability in the inheritance. The bank can demand immediate repayment of the secured amount. If the company does not have sufficient cash flow at this moment, bankruptcy threatens. A term life insurance, whose amount aligns with your guarantee values, immediately neutralizes this risk.
Let's consider a specific scenario: A medium-sized entrepreneur takes out a €500,000 loan in 2025 for a new production facility. He personally guarantees the loan. If he unexpectedly passes away, the bank demands the sum back. The heirs have two options: Sell the business or cover the sum from private funds. With suitable term life insurance, the loan amount is directly paid to the bank or the heirs, the liability is extinguished, and the business can continue under new leadership or with the partners. This not only secures the assets but also the jobs of your employees.
Key Person Insurance: When the Knowledge Leaves the Company
In many companies, success is tied to one or two key individuals. These could be the visionary founder, the chief developer, or the sales manager with the best contacts. If that person is lost, revenue often drops while fixed costs continue. The so-called Keyman insurance is a special form of term life insurance where the company itself is the policyholder and beneficiary. The premiums are recorded as business expenses, reducing the company's tax burden.
The advantages of this arrangement are varied:
Bridging funds: The insurance sum covers the loss of revenue during the transition period.
Headhunter costs: You have the capital to find and finance an appropriate replacement for the key position promptly.
Creditworthiness: Having Keyman coverage enhances the rating with banks, as the risk of leadership failure is minimized.
According to industry reports from the year 2025, more and more startups and SMEs are using this instrument to reassure investors. An investor wants to ensure that their capital is not lost just because the founder fails. Keyman insurance is thus also a tool for corporate valuation and stability. At nextsure, we enable you to quickly complete such policies digitally, ensuring your company remains liquid even in times of crisis.
Tax Planning: Avoid Cross-Insurance
A common mistake in securing business partners is incorrect contract construction, which can lead to a high inheritance tax burden in the case of a claim. If two partners wish to secure each other, this should be done through what is known as a cross insurance. Here, Partner A insures the life of Partner B and is themselves the policyholder as well as the premium payer. In the event of Partner B's death, Partner A receives the sum tax-free, as it is not an acquisition by reason of death but a benefit from their own contract.
However, if Partner B were to insure themselves and designate Partner A as the beneficiary, inheritance tax would apply to the insurance sum, provided the allowances are exceeded. As the allowances between business partners (who are not related) are very low at just 20,000 euros, this can significantly erode the coverage. Professional advice and the use of digital tools for contract design are essential here.
Additionally, you should check the tax deductibility. While private term life insurance policies are only deductible as special expenses to a limited extent, keyman policies can be fully claimed as business expenses. However, this requires a clear separation of beneficiaries. If the insurance sum is used to pay off a loan for which the company is liable, the business-related purpose is clearly present. At nextsure, we emphasise that your protection is not only comprehensive but also optimised for tax purposes.
The optimal insurance sum: How to calculate correctly
The question of the correct amount of insurance coverage cannot be answered with a one-size-fits-all solution. It depends on your individual indebtedness, your lifestyle, and the structure of your business. A rule of thumb for entrepreneurs is: 3 to 5 times the annual profit plus the total of all business loans and guarantees. Also consider a reserve for inheritance tax and the costs of executing a will.
An often overlooked factor is inflation. An insurance amount that seems appropriate today may become too low in ten years due to price increases and rising operating costs. Therefore, we recommend policies with a dynamic option. In this case, the insurance amount increases annually without another health check. This is particularly important for growing businesses whose credit lines are regularly expanded.
Another aspect is the term. This should align with your long-term obligations. If you have taken out an investment loan over 15 years, the term life insurance should cover at least this period. Many entrepreneurs also opt for a decreasing insurance amount that adjusts to the repayment schedule of the loan. This significantly reduces the monthly premiums since the insured risk decreases with each repayment installment. At nextsure, we offer you flexible models that can be tailored exactly to your repayment plan, so you don't pay a single penny too much.
More useful links
Lebensversicherung als Kreditsicherheit provides information on this topic.
FAQ
Why do banks require life insurance?
Banks want to minimise the risk of default. If the main decision-maker passes away, the repayment of the loan is at risk. The insurance serves as additional security (assignment of security) to the bank, allowing the loan to be repaid immediately.
What is the difference between term life insurance and payment protection insurance?
A residual debt insurance is directly linked to a loan and only covers its balance. A term life insurance is more flexible: You can freely choose the amount, use it as collateral at various banks, and it remains in place even if the loan is paid off early.
What should the insurance amount be for a managing director of a limited liability company?
It should at least cover personal guarantees, the costs for interim management for 12 to 24 months, and any severance claims to heirs. An amount between 500,000 and 2 million euros is often recommended.
Can I take out multiple term life insurance policies at the same time?
Yes, this is possible and is often sensible for clearly separating different purposes (e.g., private for family and business for company). However, you must specify the existing contracts when entering into a new one.
How long does the payout take in an emergency?
Once all documents (death certificate, insurance policy, medical certificates) are available, the payout usually takes place within a few working days. For large sums or unclear causes of death, an examination by the insurer may extend the time frame.
Do I need to disclose hobbies like skydiving?
Yes, dangerous hobbies must be truthfully stated in the health questionnaire. They can lead to risk surcharges, but failing to disclose them completely jeopardizes insurance coverage in the event of a claim.
