Life Insurance Strategies For Business Owners

Business owners have a lot on their plates.

No matter the size of the business, all owners must manage staff, balance budgets, and oversee purchases, along with making sure people are actually coming through their doors.

One important thing for business owners in Canada to consider: life insurance. Life insurance isn’t just personal — it can be vital for business owners to protect their company and its well-being.


Life insurance for Canadian business owners can do everything from cover a payout to a business if you or key employees pass away or take care of business debt and expenses.

Life insurance not only protects you and your business partners but can go a long way to protect your family as well.

So where to begin? Here are a few life insurance strategies for business owners to consider.


Think About What Type of Life Insurance To Invest In

In Canada, business owners can take advantage of two types of life insurance: permanent life insurance and term life insurance.

  • Permanent life insurance is just that: permanent. Generally, it covers business owners for their entire life and does not expire. For business owners, permanent life insurance is commonly used for either shareholder estate planning or retirement.
  • Term insurance on the other hand lasts for a set period of time, often 10-year or 20-year terms. Within business, term insurance is commonly used to cover loans or used by a “key person,” typically an owner or a few higher-level employees.


Consider Your Unique Business Needs

One life insurance size does not fit all business owners and businesses. Your insurance strategy may largely depend on the overall size and nature of your company, and well as your specific job title.

Remember: You can own a policy just for you individually or inside your business.

For example, independent freelancers often require term insurance to make sure their families get payouts to address business loans or financial emergencies.

Small business owners can use term life insurance to address overhead expenses and outstanding loans — and guy term life for employees. Permanent life insurance for small business owners can greatly assist with retirement planning.

Owners of midsize or larger size businesses frequently combine term and permanent life insurance for themselves, employees, or shareholders. In this case, life insurance can help businesses develop unique tax strategies.

Other benefits for larger businesses include how they can preserve and create working capital using whole life insurance and being able to reorganize after a big event, such as the death of the main shareholder.


Write Out a Specific Budget

Before deciding which types of life insurance you need (or don’t), take a hard look at your current business expenses as well as goals for the future.

Outlining outstanding loans or loans you may need in the future, as well as your ongoing expenses. Other aspects to consider include the expected tax costs incurred when you or employees pass away, as well as how much replacing a big shareholder’s position would run you.


Designate Beneficiaries

Figuring out your life insurance as a business owner means also pinpointing your beneficiaries. If you get personal life insurance, beneficiaries can be family members and friends, but also charities or religious organizations — or some combination of options.

If life insurance is owned under a company, typically the policy beneficiary is the business or corporation itself.


Weigh the Pros and Cons of Business Life Insurance

It often comes down to purpose. As a business owner, think about where life insurance proceeds will be most effective as well as the most appropriate way you’ll cover premiums.

There are advantages and disadvantages to different types of life insurance that are corporately owned. Advantages include lower premiums post-tax and even some situations where premiums are tax-deductible.

Insurance policies owned by businesses can be used for many strategic purposes, including protecting business loans, key person insurance, corporate wealth transfer, and business share redemption.

Some possible disadvantages of corporate-owned life insurance include complications that may arise if your business is dissolved or sold.

In these cases, a policy may transfer entirely to a different person or individual, leading to disposition. For these reasons, business owners may decide to own life insurance outside of their business or inside a holding company.


Think About Insurance You Already Have

You may have a personal life insurance policy already. One strategy may be transferring that policy into your business.

There are two big advantages of this strategy: You may be able to take advantage of tax-free advantages inside your business and after-tax corporate dollars could pay for your future premiums.

There is a lot to think about when considering this transfer strategy. Your policy’s fair market value must be examined and the policy transfer may increase your policy’s adjusted cost basis or ACB, the cost of the interest in the policy that is adjusted for particular details.


Work With a Solid Life Insurance Advisor

Life insurance is complicated on its own. Life insurance for business owners can often be even more complicated.

That’s why it’s important to work with an expert. Business owners in Canada considering various life insurance strategies have found great benefits in working with Sim Gakhar, a life insurance and investments advisor who has helped numerous owners of businesses small and large develop a secure and stable financial future.

Working across Ontario, Canada, Gakhar helps business owners develop solutions based on their individual needs and goals, especially when it comes to life insurance. In clear terms, Gakhar can help break down the various forms of life insurance available that are the best fits for you, your business, and your family.

You’re not just a name or a budget to Gakhar. You are an individual with specific goals and needs. From the first meeting in person or over the phone, Gakhar works closely with clients to determine their exact insurance needs, the ins and outs of their business and review the various approaches and life insurance policies that could be the best fits.

Gakhar works with business owners every step of the way, all the way up to choosing the exact plans and purchasing the premium that helps set up business owners for a more secure future.

If you’re a business owner interested in your options for life insurance, give Sim a call at 647-889-7290 or email [email protected] to start planning for your financial future today.

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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