Signing surety for anyone is risky business. It gets worse if you are a business owner and you sign surety for business debt e.g. overdraft facility, a business loan or asset finance because these can run into millions of Rands. Yet getting into debt to grow your business is inevitable and banks and other funders will ask you to sign surety. Have you asked yourself what would happen one day when you pass on and the debt is still in existence? This is where contingent liability insurance will assist you.

When you have passed away, your estate will most likely be called upon to settle the debt. So you might have left money, assets, properties and life cover for your family and these could end up being used to settle your business debt that you had signed surety for.

How do you protect your personal estate against creditors of your business?

Your business must take out life cover on the life of the business owner/s for an amount that will cover the amount for which the business owner/s stood surety. The life cover can be extended to include disability. Note that the life cover amount must be higher than the loan amount that the business owner signed surety for as there will be income tax, estate duty and capital gains tax that will be levied. AND the business owner/s must sign an agreement with the business to force the business to use the money to pay the loan for which the business owner stood surety.

The business must cede the policy to the bank / funder as security for the surety.

So, if you have signed surety for business debt and you want to ensure that your creditors do not exercise the sureties against your estate one day, contact ThuthukaSA.