Contingent Liability

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Often when you start up a business, the bank will ask you to sign surety for the debt you incur
in setting up or buying the business. A problem can creep in if you have no clear division of
your own personal assets and your business assets. Should you, for instance, own your
business in a closed corporation and your business should go bankrupt, there will be no
negative consequences for your own personal assets.
If the bank asks you to sign surety, then the contract might also bind you as a principal debtor
and you will not have all the protection that a surety would normally have.

This means the bank can demand that you pay the debts of a business. In other words, your
personal assets can be in danger. The situation can be even worse if the business owner
dies, because in a case such as this the bank can demand that it gets its money before the
business possibly goes bankrupt after the owner’s death.
The business owner’s family then has to use money from other policies that paid out to pay
the bank for the business debt.

The moral of the story is that, as a business owner, you should cover yourself by buying life
insurance. That way, should you die, the money can be used to pay off your debts on your
business and your family will not have to cough up.

Please contact the Sanlam Cobalt Call Centre on 0860 100 539 should you require any
further information.

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