Business Liability Protection

An owner of a company often has to provide personal security for a loan taken out by the business. But what happens to the debt should this person die or become disabled?

The problem for the owner is that he or she will be personally liable for the debt if the business is unable to repay the loan. Should the owner die before the debt has been settled, the creditor can claim the outstanding money from his/her estate.

This has an impact on the business owner's heirs and dependents. It could even result in the estate being declared insolvent if debts exceed assets.

Worse still, if the owner becomes disabled, the creditor has the right to claim the amount from him or her personally.

Co-owners may feel the impact too. They may be forced to sell some of the business' assets if the funds cannot be raised via traditional means.

Business liability protection is risk insurance that a business takes out on the life of an individual who stands surety for the debts of the business. The amount of cover should be equal to the loan amount.

1. The bank gives the business a loan.
2. The owner stands surety for the loan.
3. The owner and the business agree that the business will repay the balance of the loan should the owner die or become disabled before the loan is fully repaid.
4. The business effects a Greenlight benefit on the owner's life (which should ideally include life and disability cover).
5. On the owner's death or disability the Greenlight proceeds are paid to the business.
6. The business repays the loan and the owner (or the estate) is released from surety obligations.

For the owner

• Personal assets are released from any liability on death or disability.

• The estate is finalised with less hassle and the dependants remain unaffected.

For the business

• The business is protected from any adverse effect on its creditworthiness as a result of death or disability of the person who stands surety.

• The outstanding liability is settled in full without burdening the business' financial resources.

If you are interested in Business Liability Protection, email us and we’ll have an adviser call you or contact a Personal Financial Adviser.