When a business entity like a private company, closed corporation or even a trust, borrows money from a financial institution, the directors or partners will need to sign surety for that debt. In the event of the death of one of the directors, the remaining partners will be held liable for the full outstanding amount. (Strict enforcement of the Credit Act means that financial institutions will require businesses to pay any outstanding debt on behalf of a deceased member).
This repayment can become a major problem for the business if they do not have sufficient liquid funds to pay out that debt. If the debt is not paid, the creditworthiness of the business will be adversely affected. A contingent liability plan will help cover these costs and avoid an adverse creditworthy rating. The amount of cover sought should be equal to the debt owed.