As someone that both owns businesses and deals with numerous other business owners, I come across businesses that have debt problems all the time. It’s something that seems so small and trivial yet it can have serious ramifications if not correctly addressed. In this Part 3 Article we look at Contingent Liability Plans and how they can secure your business’s ownership.
Debts on vehicles, manufacturing machinery, property, loans and other such elements are often protected by the signatures of those running the company. If all goes to plan, and everyone remains fit and healthy, then there shouldn’t be a problem. The company would continue paying the installments and the creditors are kept happy.
But insurance is never meant for the ‘ideal’ situation. Insurance is there to protect people and entities against those unforeseen circumstances. When it comes to matters in which a person has signed surety against a debt, then that is a contingent liability and this is where Contingent Liability Cover comes into play.
In the event of the surety signer passing away before the loan has been settled, the creditor has the right to claim the outstanding debt from the owner’s estate. This is at the expense of the owner’s heirs. The estate may claim the outstanding amount from the business, which may force the business to sell its assets and even face liquidation in extreme circumstances.
In Contingent Liability cover, the company or entity takes out Life Cover. Sometimes adding an accelerated disability product to the employee or Director that has signed surety, usually to the value of the debt, for example a bank over draft. The proceeds of the Contingent Liability policy would absolve the surety signing person’s estate from having to settle the outstanding debt.
Section 11(w) of the Income Tax Act currently makes any premiums paid on Contingent Liability policies non-tax deductible, however this does mean that the proceeds of these policies are tax free.
Ultimately a Contingent Liability offers relief from the stresses felt by the deceased Estates in a time of need. The burden felt by having personal debt is lifted by having the Contingent Liability Policy that is in place. With our advice we can plan a Contingent Liability Cover that will suit you and your business.
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