Business protection insurance protects your business if the business owner for your loan was to die or become terminally ill by paying out a lump sum of cash upon death or diagnosis. You can get either life cover or life and critical illness cover business loan protection, life cover only pays out once the person responsible for the repayment of the loan (whoever that would be) has passed away, whereas life and critical illness cover will also pay out if the relevant person has been diagnosed with a critical illness, as long as it is one of the named illness listed on the providers policy.
It is not a legal requirement to take this cover, however it is a prudent and sensible measure to take out business loan protection if you have a substantial business loan, so that in the event of an unexpected death or critical illness diagnosis the business is protected from collapse or the directors/key people in the business from crippling debt.