Types of Life Insurance for Business Owners

Life insurance policies are of the essence for business owners in Canada. Lump-sum payments now can assist your beneficiaries and business in their time of need. The question is not if you need a life insurance policy, it is which policy is best for you.

There are various types of life insurance policies available for Canadian business owners, such as term, whole life, and universal insurance. This article breaks down each insurance and its specific requirements and payout options, making choosing the right one a breeze.


Do Business Owners Need Life Insurance?

In short, yes, all business owners should consider taking out a life insurance policy. Running a business itself costs time, energy, and resources. Business owners need to ensure that their loved ones are left behind without financial worry once they are gone.

Death benefits from life insurance to an estate are typically not affected by income tax. These benefits can be used to pay for outstanding debts, funerals, housing costs, education, and more. Business owners should take on the responsibility of leaving their family financially secure and in good hands through a life insurance policy.


Term Life Insurance for Business Owners

Business owners need to be flexible and cost-effective in their work, and term life insurance covers both of these aspects.

For this insurance type, business owners pay a set amount of money during one term until it renews for another. Premium prices may change between terms depending on various factors. If the owner dies during the active term, their beneficiaries are given the tax-free insurance payout in one lump sum.

Term life insurance is beneficial as it often costs less than whole life insurance. It can be used to cover loss of income, pay a mortgage, finance education, or cover the costs of maintaining the said business.


Whole Life Insurance for Business Owners

Whole life insurance, also known as permanent life insurance, provides coverage throughout the life of the business owner. There is no need to renew terms throughout this policy and the premium payments are normally fixed.

Whole life insurance payments may be higher than term insurance payments since they have a cash value. Business owners should see this as more of an investment than a monthly payment, as the cash value can accrue interest. Do note that this also accumulates taxes, but that these can be deferred.

When the policyholder passes away, their beneficiaries receive one tax-free payment. This payment amount depends on the insurance coverage the business owner selects. Typical Canadian insurers offer policies from $10,000 to $10 million.


Participating Whole Life Insurance for Business Owners

Another variant of this insurance is participating whole life insurance. In this case, the business owners receive dividends into the policy if the company declares them.

These dividends allow for cash available when needed while the business owner is alive. This can be used for general emergencies or even retirement income. If no cash is pulled out of the whole life policy, it continues to grow tax-free within the government limits.

Participating whole life insurance policies may have slightly higher premiums, but they also offer larger payouts for the beneficiaries. The dividends declared by the company become a part of the policy and are guaranteed, regardless of the funds’ performance.


Universal Life Insurance for Business Owners

Another type of permanent life insurance for Canadian business owners is universal life insurance. Think of this policy as buying the term and investing what’s leftover.

Policyholders can choose their investment type and payment for universal insurance. Their extra money is invested into the market and the business owner can earn or lose money depending on market performance. The wealth in this account continues to accumulate tax-free over time, within the government limits.

Universal life insurance offers different premium options. First, the policyholder can pay a level premium for a limited time, such as 10 or 20 years. Then, the policy remains active all their life.

Another option is paying for the policy annually as a renewable term. These premiums start low and increase with age, although the policyholder has the option to level the premium if they so desire.


How Life Insurance Can Help Business Owners

Life insurance for business owners can offset a multitude of costs for their beneficiaries, business, and loved ones.


Protecting Loved Ones

Life insurance policies are primarily used to assist beneficiaries, whether they be family, friends, or business associates. Differing insurance payouts can be used to cover emergencies, medical costs, funerals, education, pending debts, and even mortgages.

After a death, the last thing anyone should be worrying about is financial pressure. Give your beneficiaries peace of mind through your life insurance policy.


Protecting Your Business

Life insurance policies for business owners can also be used to retain employees, establish the future of the business once the owner has passed, and recover lost income.

Business owners work hard to build their legacy within their companies. These companies have ongoing costs which need to be addressed for the business to succeed. If not planned for, unexpected death can leave your business in ruins.

Make sure your legacy isn’t left in the dust. Consider a business owner’s life insurance policy today.


Obtain Your Life Insurance Today

Give your legacy a safety net to land on and secure your business’s and family’s future. Sim Gakhar is an experienced Canadian life insurance and investments advisor who can help you with this task. She takes on each client with an individualized and focused perspective, making sure to meet all of their needs.

Sim is licensed by the Life License Qualification Program and has her Certified Health Insurance Specialist credentials. She is an active member of The Financial Advisors Association of Canada and an advisor at HUB Financial.

While her professional credibility is clear, Sim’s strategies are personal. They include factoring in affordability, financial goals, and personal concerns to build the best policies for her clients.

If you are considering a life insurance policy, Sim would be happy to walk you through the options and answer any questions you may have to secure your 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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