With death or permanent disability there are implications… The creditor may call up surety exposing the estate of the owner. If that is the case, this will result in a claim against the business, which may require the remaining business owners to pay the short fall. As a result, long and short term funding structures may be exposed, whereby third party creditors may withdraw finance or even increase the cost of finance.
THE SOLOUTION: Implement an insurance policy with life and disability cover
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- The cover amount is the total rand exposure
- The life assured is the person signing the surety
- The business owns the policy and pays the premiums
- The premiums are not tax deductible therefore pay is free of tax
- Policy is free of estate duties – if Section 3 (3) (a) (ii) of Estate duties Act are met
Tip: Surety is not a lifetime obligation, it’s just for the period of the loan. But when the loan is repaid, make sure to cancel the surety, as the business owner at the time of the surety will be held liable if called up by the Financial Institution.