How to leave love and not debt for your family
“When you get a loan, and do a personal guarantee, you are basically opening up your house and personal assets to the bank should there be any default”
Some of you may had been asked before by your Banker or Loan Adviser to take up an insurance for your business loan. You may understand the rationale behind this or not, so today i am going to talk about what is the link between a Corporate Loan and getting a life insurance for that.
Before that, let's talk abit about corporate structure and the liabilities.
Sole-Proprietor & General Partnerships -
You are basically fully liable for any loan your company may take, so the creditors has full rights to your personal assets. Especially General Partnerships, as there is no limitation of liabilities, so should your partners has any liabilities, be it personal or through the business, you are equally liable for it as well, so do note this.
Limited Liability Partnership and Companies -
In this 2 structure, the liabilities is limited to the person who took on the loan, so partners have a layer of protection in between. Plus, the company and the owner is considered separate entity, so the responsibility and liability is usually separate from each other, however it doesn't mean all company loan won't impact the owner, and we are going to focus on this 2 structure today.
It is a given that people wants to get their money back if they lend you so when Banks and other Financial Institution lends money, there is a few factor they will look at: Age (Company), Credit Worthiness (Both owner and company) and Financial Health. At times, it will be helpful to let them know what will be the purpose of the loan as well, even between paying supplier or staff and buying of equipments for expansion they will look at the loan differently. That is also why they will want the director to do a personal guarantee so the owners will feel pressure from the loan as well.
Coming back to the main topic today, credit insurance. When you get a loan, and do a personal guarantee, you are basically opening up your house and personal assets to the bank should there be any default. So the 1st purpose of the insurance is to function as a debt cancellation tool, to help protect your family from unsavoury debt collection. You can set the insurance to payout upon death, total disability or severe illness like stroke.
Next having an insurance also helps in the loan application, as mentioned, nobody will lend money and don't expect it back. Having this insurance will let the bank know in the events of untimely demise, they can still get their money back, there is no guarantee they will get back their money even if they go after your family after all. You may have more creditors than this new loan, so they may not get anything after other creditors took what is left after your are gone as well.
Don't scrimp on that few extra dollars on insurance when you make the instalments on your loan, it may be your saving grace to offset the whole loan altogether you never know.
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If you would want to receive advice on business risk management, you can reach out to: Rayvern.forlife@gmail.com or +65 83823194
Your Business Risk Consultant
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