Your business can purchase life insurance for you, usually at a rate that is much lower than purchasing individual life insurance, and there are many benefits for your business.
There are some areas where having your business pay for life insurance does not work out in the way that you think, so understanding what goes on is important for making an informed decision.
Why Businesses Purchase Life Insurance
Businesses might want to purchase life insurance for a number of reasons related to the health of the business and the employees.
Businesses can be protected in the event that key employees, business owners, and shareholders die unexpectedly. Life insurance policies offset the costs of covering their responsibilities and finding a suitable replacement. They can only create a streamlined path for business succession.
Life insurance policies on individuals can improve company morale and help families in the unfortunate event of death. The payout of a policy can offset outstanding debts, pay for funeral expenses, and provide after-death care for individuals dependent on the person’s income.
What Kinds of Life Insurance Can My Business Pay For?
Businesses can purchase life insurance that covers a specific term or life insurance that covers whole life. Understanding the difference between these types of policies can help you consider the benefits of having your business pay for your life insurance.
Term Life Insurance
Term life insurance covers you for a specific period of time, usually 10 or 20 years, but the term can be adjusted as needed. You can even extend term life insurance if you surpass the policy period.
Term life insurance helps do things like replacing lost income and providing a safety net for beneficiaries and covering the cost of after-death expenses.
Term life insurance is a cheaper option because it has a set end date.
Whole Life Insurance
Whole life insurance covers an individual for the duration of their life, and because of this, you can expect a higher premium. Whole life insurance does have a cash value, and it can function as savings and accumulate tax.
Whole life insurance policies work well to transfer wealth onto beneficiaries after death.
The Cost of Life Insurance for Businesses
Life insurance bought through a business is usually much cheaper, even for a policy that is the same amount as what you might purchase as an individual.
Most businesses have access to group life insurance policies that are discounted because of their group pricing. The cost of these policies is minute compared to the potential costs of not offering them.
Businesses without life insurance might notice a decrease in employee performance due to stress over the post-life care of their dependents.
When you let your business pay for your life insurance you can also include terms that cover its care after you die, including allocating funds to keep the business afloat and defining how your shares will be passed on.
Is the Purchase of Life Insurance Tax Deductible for Businesses?
The purchase of life insurance can be tax-deductible for businesses, but this is not always the case.
If the business is the beneficiary of the policy then, in most cases, the amount of the premium is not tax-deductible. This is because the goal is for the business to have these funds returned at some point, even if it is a long-term situation.
Individual insurance policies that payout to employees’ dependents or other entities may qualify for tax deductions.
Can Life Insurance Benefit Both My Business and Personal Life?
Your business can purchase a policy to cover different parts of your life, and having the two areas covered can create an easier transition for the business and individuals in your life.
Business-related life insurance policies can help mitigate the damage in the event of your death, providing security for those who work with and for you. These policies help keep the business functioning after you pass. Even if the business does not survive your death, a life insurance policy can provide a sizable severance to assist employees in taking their next steps.
Life insurance policies are also useful for paying out to your dependents and those closest to you outside of your business. Policies can pay out to cover your end-of-life expenses, debts, and assist in day-to-day expenses.
The Pros and Cons of Businesses Paying for Life Insurance
Having your business pay for your life insurance is generally well-accepted and desired, but there are a few things to consider before committing to this move.
Businesses can usually purchase a larger insurance policy for less money, so you can have a policy with more coverage than you would purchase on your own. Depending on who you list as the beneficiary of your policy, your business can also benefit from tax deductions on this expense.
When you incorporate your business in your life insurance policy you provide protection for the health of the corporation and your employees in the unfortunate incident of your death. This increases the security of those employees and can help keep your business strong for your future generations.
While life insurance can be tax-deductible for your business, this is not always the case. You may find yourself in a situation where you are deferring tax payments to be deducted at a later date.
The rates you have for life insurance through your business are also prone to change over time as your business changes. This can be for better or worse, but it can be difficult to plan future fluctuations in your premium.
Not only can your business pay for your life insurance, but there are many benefits linked to doing things this way. You can even purchase multiple policies, both through your business and on an individual basis, to unlock the full benefits of life insurance.
To understand these benefits better and make a decision that is best for your situation do not hesitate to contact Sim Gakhar. Speaking with someone who understands the intricacies of Canadian life insurance is the best and easiest way to determine what your next move should be.
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