How Much Does Life Insurance Cost for Small Business Owners?

Life insurance costs for Canadian business owners are much lower than individual insurance policies, and you can expect to pay a few cents for every $1,000 of coverage. The actual amount paid is depending on factors like the coverage requested and the risk of insuring.


It can be difficult to pin down a specific amount for insurance costs but understanding how different details affect policy costs will help you prepare for how it fits into your finances. In most cases, the costs of failing to secure life insurance are far more than you would ever payout.


The Different Types of Life Insurance

There are two general types of life insurance that a business owner can buy, and they meet different needs and demand different costs.


Term Life Insurance

Term life insurance is protection for a specific period of time, such as 10 years or 20 years. This type of life insurance can cover things like loans, protecting your business from unexpected deaths, covering key employees, and funding buyout agreements.

If you need the policy to get started and/or test the waters then this will work better for you. Term life insurance is usually a cheaper option, but fees fluctuate and there is no savings component attached.


Permanent Life Insurance

Permanent life insurance, also known as whole life insurance, covers through to the death of an individual, and businesses usually use it to fund buyout agreements, secure additional funds, plan succession, and provide extra financial protection with life insurance to all Canadian business owners.

Because this does not involve a set term it is generally more expensive (up to 5 times as much), but fees are not likely to fluctuate.


What Determines Life Insurance Costs

Beyond policy type, there are plenty of variables that play into the cost of life insurance for your business, such as:

  • The size of your group
  • The size of your coverage
  • The average age and gender of those being insured
  • Your business type/occupations covered
  • The history of claims in your company

Depending on these variables, you can see the price of your policy rise or fall.


Number of Those Being Insured

As a general rule, the more people you insure the cheaper the policy is per person or $1,000. This is because the insurance company is getting more from you in terms of the premium, and they want to keep the amount manageable for your business.

Most insurance companies will not do a group policy for less than 10 individuals, so some small businesses may need to look to other opportunities to save. Finding someone who understands corporate life insurance can help you find policies that best fit the size of your business.


Policy Coverage

The more coverage you request the more you can expect to pay for your business life insurance. Life insurance companies need to keep things fair for when they release funds after any ending of life, and requesting more monthly is directly related to their ability to do their job.

Another key difference in policies and the amount you pay is the type of policy that you have. Term policies are almost always cheaper than permanent life insurance.


Age and Gender of Those Covered

When it comes to insurance you can expect to pay more for male employees than female employees. The price goes up with the average age of your employees as well, regardless of physical health.

Your policy premium can also be reassessed as this information is updated throughout the years.


Occupation Type

If your business involves more hazardous work then you can also expect to pay more for life insurance for your employees. If there is an inherent risk of life or health from the workplace then a life insurance company will adjust the cost in relation to this risk.


History of Claims in the Company

If your company has a higher history of claims then your policy cost can be higher than others but do not expect this to affect you much. It is unlikely that you will have a collection of policies come to term at the same time.


Tax Breaks for Business Life Insurance

When you have life insurance policies for your employees you can reduce the taxable income of your business, but this is not the only tax break you get.

When you put money into a life insurance policy instead of simply saving it, you set your business up to receive these beneficiary funds in a single tax-free payout. If you were to set them up as simple savings this would not be the case, and you would lose a portion of the premium to taxes.


The Cost of NOT Securing Life Insurance as a Business

The real cost comes from not purchasing life insurance as a business.

Businesses that do not provide life insurance, especially to major employees, run far behind the competition when it comes to hiring. Life insurance is one of the ways you can improve the appeal of working for your business, and failing to do so can cost you employees that might take your business to the next level.

Failing to secure a life insurance policy also leaves plenty of room for your business to go belly up if one of your key employees or business partners dies out of the blue.

Corporate life insurance can provide you with the funds to cover their replacement, and, if there is a policy which provides life insurance for a business partner, there can be a pre-determined process for moving their shares into your name.


Final Thoughts

Life insurance costs much less for businesses than it does for individuals because of things like group discounts, but many variables change the cost from business to business. You also have plenty of tax incentives to offset the cost, and there are instances when failing to secure a policy will cost you more long-term.

The best way to figure out the actual cost of life insurance for your business is to work with someone who knows the ins and out of Canadian life insurance. Contact Sim Gakhar to understand what options are out there for you and your business.


Essential Planning for Financial Security

Helping business owners and self-employed professionals grow retained earnings tax-free, pass more wealth to the next generation, and protect their biggest asset – themselves, the executive of the business by acquiring a key person life insurance policy.



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