Purchasing life insurance is one of the most responsible decisions a Canadian business owner can make. It is a decision for those who prioritize diversification, personal success, income growth, and financial security. Today we’ll discuss the importance of life insurance for business owners, from the personal to professional aspects.
What Is Life Insurance?
A life insurance policy for a business owner is similar to a personal life insurance policy, with the possibility of additional benefits. Business owners can decide to personally own or corporately own their life insurance policy.
The most popular life insurance policies include term, whole, and universal insurance. Policies can be paid through a level premium, term premiums that are renewed, or fixed premiums over a lifetime. Some policies may also include investments and dividends as a part of the policy.
When the policyholder dies, their designated beneficiaries are paid by the insurer in either a lump-sum payment or through continuing payments. These beneficiaries can include friends, family, or business associates.
Depending on the policy, life insurance payments can be used to help with various expenses incurred by both the beneficiaries and the business left behind.
Why Is Life Insurance Important?
The importance of life insurance for business owners is undeniable. Business owners must deal with covering debt, professional planning, taxes, net worth, diversification of assets, and protecting their beneficiaries and business. All of these concerns can be addressed through a life insurance policy.
The average Canadian owes over $73,000 in personal debt. Estimates for business owners are said to be even higher. You’ll need to make sure your family isn’t burdened with this debt once you are no longer around to pay it.
Upon your death, certain loans or debts may require immediate repayment. To avoid jeopardizing your family’s assets or your business, a life insurance policy can counter this financial pressure.
Smart business owners know that diversification is key to financial stability. Paying into a life insurance account is another way to diversify your assets.
Participating whole or universal life insurance policies are a great way to diversify. Participating whole life insurance allows the policyholder to receive dividends if the company declares them. These dividends accumulate and create a cash fund within the policy that can be pulled out for emergencies.
Universal life insurance, on the other hand, allows policyholders to specify their preferences for investing money into the market apart from their premium life insurance payments.
Buy and Sell Agreements
If you manage your business with a partner or group, a buy-sell agreement may be funded through your life insurance policy. This determines what happens to your part of the business if you were to pass away.
Some life insurance policies include a death benefit, which can be given to business partners upon the death of the policyholder. The business partners can then use it to buy the company shares of the deceased policyholder.
Through methods such as universal life insurance, Canadian business owners can access tax-free growth on their accounts. From dividends to market investments, these life insurance accounts accrue tax-free within the government limits.
These funds can be accessed for emergencies, both personal and business-related. If they aren’t used, the final tax-free payout to beneficiaries will be that much larger.
Growing Your Net Worth
Your business is only one part of your financial identity. By diversifying and reducing your overhead taxes, you will grow your net worth alongside that of your company. Watch with pleasure as the funds in your investment life insurance policy grow alongside your net worth.
Protecting Your Beneficiaries
One of the most important parts of life insurance is the beneficiaries it seeks to protect. Family, friends, and business partners alike can benefit greatly from your intelligent decision to obtain life insurance.
Life insurance payouts can be used to pay business debts, funerals, education, mortgages, and to supplement income loss. A smart business owner knows how to do business even after they have passed – and one way to do so is to secure financial stability for their loved ones through a life insurance payout.
Maintaining Your Business
The average small business in Canada spends between $5,000-$10,000 just in starting up their business. This doesn’t include the thousands of dollars that must be paid into ongoing equipment, licensing, inventory, marketing, and payroll costs.
Businesses make money, but they also cost money to upkeep. You didn’t create your business for it to just disappear when you do. A life insurance policy will leave behind a financial security net to maintain your business and your legacy for years to come.
When Should You Obtain Life Insurance?
Many individuals make the mistake of considering life insurance as they near retirement. In reality, the sooner you obtain life insurance, the better. This is even truer for business owners.
Why would a young person need life insurance? To put it simply, you cannot predict your life nor how long it will be. You may not know when you’ll go, but you can surely plan for it regardless through a life insurance policy.
Obtaining life insurance earlier also has its perks, including lower premiums and more time to accrue assets through dividends and market investments in certain life insurance policies.
How to Obtain Life Insurance for Business Owners
Navigating a life insurance policy is not a simple task. Luckily, experienced life insurance advisors like Sim Gakhar can make it easier.
Sim’s expertise allows her to lay out all of your life insurance options clearly and directly. She knows how to outline the important aspects of each policy, asking the right questions to help figure out which one would be best for you.
Sim Gakhar has worked with many clients from different backgrounds, both personally and professionally. Through her extensive work and connections at Hub Financial and The Financial Advisors Association of Canada, Sim knows how to channel your life insurance needs into the right policy at the right time. When you are ready, Sim is waiting to lend you a hand in finding the right life insurance policy for you.
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 key person of the business.