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 | Contingent liability plan |  |  |
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Overview
A contingent liability plan is funded by a life policy which will liquidate the personal guarantees given by a guarantor on behalf of the business in the event of premature death or permanent disability.
Features
- An investment life policy
- The policy is owned by the company, which is responsible for payment of the premium
- The proceeds are received on death or permanent disability of the life assured
- The contingent liability is settled in full
- Premiums paid may exceed 10% of the life assured's annual remuneration and increases in premiums are not subject to limitation
- The policy can be structured so that the proceeds are received fully tax free or are tax deductible
- A written agreement is drawn up between the business and the life to be assured which compels the business to use the proceeds as agreed.
Benefits
- The financial resources of the business are not put under any undue strain
- No additional tax burden is placed on the business
- Surplus proceeds can be retained tax free by the business
- Policy values are reflected as an asset in the business
- Liquidity in the business is not affected in any way.
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