Business Loan Protection Insurance - Bill and Ben's Story
Bill (28) and Ben (32) enter into and IT business partnership together.
Bill is the brains behind the partnership and has great plans for the business. Ben enjoys the business finance and administration and has great contacts in the industry to win new business sales opportunities. Bill and Ben employ Bob (29) to be their programmer. He has the skills they need to deliver Bill’s ideas to the clients Ben sells to.
To get the business off the ground, Bill and Ben take out a loan for $350,000 from the bank, using Ben’s family home (which he shares with his wife Linda and their children John (5) and Mary (2)) as collateral.
Unfortunately, the partnership doesn’t think it is necessary to put a buy-sell agreement in place, as the business is just starting out and Bill and Ben believe they have nothing to insure.
Regrettably, twelve months later Bob dies in a motor vehicle accident.
Bob’s death impacts the business significantly, as he is not there to write the programs and new business sales suffer as a result. Bill and Ben miss a few loan repayments as revenue from the new business sales reduces. The bank calls for repayment of the $350,000 loan.
Bill and Ben have no funds set aside to repay the loan, as they assume sales would always be strong enough to provide funds for loan repayments. The bank utilises the collateral provided for the loan, which is Ben’s family home.
Ben, Linda and the children now have to find a new home, while the business can continue on debt-free.
A business loan protection insurance policy on Bob’s life should have been purchased for a $350,000 sum insured. This would have provided Bill and Ben with the money to repay the loan. Ben, Linda and the children could have stayed in their family home.