Whether you are an employee, business owner, or self-employed, life insurance is an essential financial product that provides a safety net or financial cover for your loved ones in case anything unexpected were to occur.
While many Canadians understand the importance of life insurance, many small business owners in Canada seem to be unclear as to whether they should invest in a life insurance policy and if so, what layers of coverage they should look for.
If you are reading this article and find yourself on this boat of uncertainty we are here to help!
In this article, we will highlight the key benefits of life insurance for business owners to help you make more informed decisions about what life insurance policy is right for your needs and the needs of your family.
We will also discuss corporate ownership of a life insurance policy and why it could or couldn’t be beneficial in your case.
Let’s get to it!
Life Insurance For Business Owners – What Does it Entail?
A life insurance policy is a contractual agreement between a life insurance provider and a policy owner. This contract guarantees a sum of money to be paid out to named beneficiaries in the event of the policy owner’s death and in exchange for the premiums made by the policy owner during their lifetime.
When it comes to business owners in Canada, two types of life insurance policies are generally considered; term life insurance and permanent life insurance.
A term life insurance policy offers temporary protection for a specific period and is the most affordable type of life insurance policy for business owners. Permanent life insurance offers lifetime protection but is usually more expensive. Both policies are personally owned by the business owner.
However, business owners can also choose to opt for a Corporate Owned Life Insurance (COLI) policy that can also be either term-based or permanent. In this type of policy, the corporation or business is the total or partial beneficiary of the policy along with the owner, an employee, or a group of employees.
A COLI isn’t to be confused with group life insurance as this type of policy protects the company and not the employees and their families.
Key Benefits Of Life Insurance For Business Owners
There are many instances where life insurance can be extremely beneficial for business owners and can offer more than just protection.
Here are 5 of the top benefits:
Provides Financial Security
The main benefit of a life insurance policy is that it provides financial security to loved ones in case anything unexpected were to happen to the policyholder. The death benefit paid out when a policy is claimed can be used to cover outstanding business debts, protect personal assets, cover expenses, and also compensate for lost income.
Allows For Business Continuity
Business owners concerned about succession planning must consider investing in a life insurance policy or a COLI as these financial products are instrumental in ensuring business continuity. Business owners can choose to leave the business to a single family member through a process called estate equalization or divide the business assets amongst multiple beneficiaries ensuring the business continues to operate and grow even after they are gone.
Protects Key Personnel
A life insurance policy can also be taken out to protect key personnel within the company or business. If a vital member of the team passes away, the businesses can suffer a massive loss. This is especially true for small businesses that may rely on a specific worker for critical tasks that only they can perform effectively. In the event of their death, the business is paid out a death benefit to tide it through the transition period where it is trying to find and train a replacement.
Can Be Used As Collateral For Securing Business Loans
Life insurance policies can also be used as collateral to secure business loans or can be cashed out to fund business ventures or pay for expenses if needed.
Funding Buy-Sell Agreements
A buy-sell agreement is a contract designed to protect a business if a partner or co-owner dies. In such an event, the death benefit paid out to the business can be used to buy the percentage of shares owned by the partner or co-owner. So, for example, in a 50/50 partnership, if one owner dies, the death benefit paid out at the time will be worth 50% of the value of the business.
If the family of the deceased partner shows no interest in wanting to stay involved with the business, the death benefit can be paid out to the grieving family members in exchange for the stake of the business, which goes to the surviving partner.
Choosing The Right Insurance Policy – Things To Consider!
As a business owner, you must carefully determine what type of life insurance policy best suits your business needs.
Plenty of factors can affect the cost or premiums of a life insurance policy, including age, gender, lifestyle, health, family medical history, driving record, and even the type of job you do.
Choosing the right insurance policy means finding a policy that offers the coverage you need at the lowest cost or monthly premiums possible. This is easier said than done as before you can even begin finding a life insurance plan you must first determine how much money you or the business would need in the event of your death or the death of one of your partners or key employees.
You also need to determine how much your business can afford to pay in premiums for life insurance and whether it is financially feasible for the business to bear such an expense at present and in the future.
To find the best life insurance policy you need to shop around. With so many different providers and types of policies available, finding one that fits in perfectly with your needs and offers a low monthly premium can be a win-win solution for your business!
Life Insurance For Business Owners With McIver Insurance!
No matter how big or small your business may be, you need life insurance if you are a business owner.
Life insurance isn’t just for protection against unforeseen circumstances but also a financial tool that can assist your business in difficult times or allow your business to accumulate tax-free growth which can help grow your company’s net worth.
If you require small business insurance benefits in Nova Scotia or any of the Atlantic Provinces, whether it be for yourself, for your employees, or the business, pick up the phone and call McIver Insurance at 1-902-220-3279 or email us at [email protected]
We are Nova Scotia’s most trusted insurance brokerage company that specializes in all types of life insurance policies for Canadian businesses.