Insurance Planning for Business Owners

For business owners, making sure your business is financially protected can be overwhelming. Business owners face a unique set of challenges when it comes to managing risk. Insurance can play an important role when it comes to reducing the financial impact on your business in the case of uncontrollable events such as disability, critical illness or loss of a key shareholder or employee.

This infographic addresses the importance of corporate insurance.

The 4 areas of  insurance a business owner should take care of are:

  • Health

  • Disability

  • Critical Illness

  • Life

Health: We are fortunate in Canada, where the healthcare system pays for basic healthcare services for Canadian citizens and permanent residents. However, not everything healthcare related is covered, in reality, 30% of our health costs* are paid for out of pocket or through private insurance such as prescription medication, dental, prescription glasses, physiotherapy, etc.

For business owners, offering employee health benefits make smart business sense because health benefits can form part of a compensation package and can help retain key employees and attract new talent.

For business owners that are looking to provide alternative health plans in a cost effective manner, you may want to consider a health spending account.

Disability: Most people spend money on protecting their home and car, but many overlook protecting their greatest asset: their ability to earn income. Unfortunately one in three people on average will be disabled for 90 days or more at least once before the age of 65.

Consider the financial impact this would have on your business if you, a key employee or shareholder were to suffer from an injury or illness. Disability insurance can provide a monthly income to help keep your business running.

Business overhead expense insurance can provide monthly reimbursement of expenses during total disability such as rent for commercial space, utilities, employee salaries and benefits, equipment leasing costs, accounting fees, insurance premiums for property and liability, etc.

Key person disability insurance can be used to provide monthly funds for the key employee while they’re disabled and protect the business from lost revenue while your business finds and trains an appropriate replacement.

Buy sell disability insurance can provide you with a lump sum payment if your business partner were to become totally disabled. These funds can be used to purchase the shares of the disabled partner, fund a buy sell agreement and reassure creditors and suppliers.

Critical Illness: For a lot of us, the idea of experiencing a critical illness such as a heart attack, stroke or cancer can seem unlikely, but almost 3 in 4 (73%) working Canadians know someone who experience a serious illness. Sadly, this can have serious consequences on you, your family and business, with Critical Illness insurance, it provides a lump sum payment so you can focus on your recovery.

Key person critical illness insurance can be used to provide funds to the company so it can supplement income during time away, cover debt repayment, salary for key employees or fixed overhead expenses.

Buy sell critical illness insurance can provide you with a lump sum payment if your business partner or shareholder were to suffer from a critical illness. These funds can be used to purchase the shares of the partner, fund a buy sell agreement and reassure creditors and suppliers.

Life: For a business owner, not only do your employees depend on you for financial support but your loved ones do too. Life insurance is important because it can protect your business and also be another form of investment for excess company funds.

Key person life insurance can be used to provide a lump sum payment to the company on death of the insured so it can keep the business going until you an appropriate replacement is found. It can also be used to retain loyal employees by supplying a retirement fund inside the insurance policy.

Buy sell life insurance can provide you with a lump sum payment if your business partner or shareholder were to pass away. These funds can be used to purchase the shares of the deceased partner, fund a buy sell agreement and reassure creditors and suppliers.

Loan coverage life insurance can help cover off any outstanding business loans and debts.

Reduce taxes & diversify your portfolio, often life insurance is viewed only as protection, however with permanent life insurance, there is an option to deposit excess company funds not needed for operations to provide for tax-free growth (within government limits)  to diversify your portfolio and reduce taxes on passive investments.

Talk to us about helping making sure you and your business are protected.

Paying for Education

Post-secondary education can be expensive, however having the opportunity to plan for it helps with making sure that you’re capable to meet the costs of education. In addition, when you have a plan, it’s easier to make financial decisions that align with your goals and provide peace of mind. In the infographic, we outline 7 sources of funds for paying for post-secondary education: 

  • Registered Education Savings Plan

  • Tax Free Savings Account

  • Life Insurance

  • Scholarships, grants, bursaries

  • Personal Loans, Lines of Credit

  • Government Student Loan

  • Personal Savings 

If you need help planning to save for your child’s post-secondary education, contact us!

Guide to Covid-19: Government Relief Programs in Canada

The intention for our “Guide to Covid-19: Government Relief Programs in Canada” is to help businesses and individuals to cut through the noise and make sure they’re getting all the help they can receive from the federal and provincial programs.

Federal programs include:

  • Small Business Wage Subsidy

  • Canada Emergency Wage Subsidy

  • Canada Emergency Business Account

  • Canada Emergency Response Benefit

  • Student Loan Programs

Individual provincial programs include:

  • Utilities

  • Housing

  • Student Loan Programs

Do you need an estate plan?

Managing your finances raises a number of topics but none as tricky and potentially unpleasant as planning for your family and finances in the event that you pass away or become incapacitated. Understandably, these questions are often ignored by many—but don’t fall into the trap of avoiding these difficult matters. Good estate planning will help to make sure that your wishes are carried out, and your family and assets are well protected.

With this in mind, let’s take a look at the key areas that you should consider when designing your estate plan:

  • Choosing a guardian – One of the most important considerations is who you select to become the legal guardian of your children. This is a very personal and complex decision, and you will consider several unique factors depending on your circumstances, but your principal concerns might be how physically able the person is to look after your children, as well as such practical matters as how close they live to you and their personal and financial situation and stability.

  • Life insurance and trusts – Life insurance gives your family the financial security to continue their standard of living and fulfil their dreams in the event that you are unable to provide for them yourself. Life insurance payouts can be used in various ways, including paying off debts, paying for college education, or simply helping with general living costs.

 

A trust is a way of specifying how and when you wish to pass money and other resources to your children. It can be an excellent way of ensuring that their inheritance reaches them before the age of eighteen or twenty-one, unlike a court-controlled process, as you will stipulate who manages and distributes the funds.

·      Choosing someone to make decisions on your behalf

It is crucial to make sure that somebody trustworthy is nominated to manage and distribute your various assets according to your wishes. This executor can be anybody, though spouses, older children, or close friends are often common choices. Similarly, if you become too sick to make your own decisions about your finances or your family’s care, a health care directive and a power of attorney will give you peace of mind and go a long way towards protecting your assets.

Now that we understand the key areas that should be considered in estate planning, here are some of the important components or documents involved in the process:

·      Will, trusts, and beneficiary forms

Both a will and a trust should detail your assets and how you wish them to be distributed when you die, as well as assigning the guardians of your children. However, one benefit that a trust has over a will is that a trust does not have to go through probate prior to being executed, as well as the option of coming into effect before you pass away; it remains under your control and transfers the role of trustee to someone else when you decease.

 

Beneficiary forms are slightly different. They assign designated beneficiaries to specific financial accounts such as mortgages and bank accounts. As this information holds more legal weight than a will itself, it is crucial to regularly ensure that your beneficiaries are up to date.

 

·      Durable powers of attorney

The term power of attorney refers to the person, or persons, that you nominate to act on your behalf in the event that you are too ill to state or carry out your own wishes. There are various ways to implement this; you can choose specific individuals for particular roles, such as one person to look after your finances and another to make your healthcare decisions, or you can designate one person full power of attorney to manage all of your affairs.

 

·      A living will

Not to be confused with a last will and testament, a living will details the type of medical treatment that you wish if you were ever incapacitated. Along with a general or healthcare power of attorney (see above), this document is known as your advance health care directive, and it not only provides you with peace of mind that your medical wishes will be respected, but it also gives direction and support to your family when faced with difficult decisions about your care.

 

·      Letter of intent

This document is not legally binding and can offer a more personal touch alongside an official will or trust. As the letter is less formal and binding than other documents, many people use it to express their wishes about more personal aspects such as their requests for funeral arrangements, or even preferences and desires for how their family should be brought up.

As with any financial arrangement, changes over time, not only in process and legislation but in your own personal situation, mean that it is imperative to keep your estate planning strategy under review and regularly updated to ensure it’s fit for its purpose and accurately reflects your wishes. 

Accessing Corporate Earnings

One of the financial planning issues that business owners face is how to access their corporate earnings in a tax efficient way.

There are 5 standard methods:

  • Salary

  • Dividend

  • Shareholder Loans

  • Transfer Personal Assets

  • Income Splitting

There are also unique ways utilizing life insurance and critical illness insurance to access your retained earnings. Please contact us to learn how we can get more money in your pocket than in the government’s.