Summary: Business Owner Insurance Considerations
Businesses can range in size from one employee to thousands. Part of being a successful business owner is the ability to find the right people to help that business grow and prosper. Once those people are in place, the challenge is then keeping them. Unfortunately, the business owner may not always be successful in retaining these key employees. Replacing them can often be an arduous and time-consuming task. The loss can put a financial strain on the business but most businesses will survive. However, the same cannot be said for the loss of a business owner. What happens to a business if the owner is not able to manage that business as a result of an injury, sickness or death? Planning for these unforeseen events can help ensure the survival of the business and the financial well-being of the business owner’s family. This planning may include:
Life insurance can be utilized in a number of ways for business owners:
- Fund a buy-sell agreement in the event of a death of a shareholder.
- Providing financial support for the company in the event of a loss of a key person.
- Providing funding for debt reduction.
- Providing funding for taxation when transferring the business to the next generation.
- Providing funding for estate equalization.
Disability insurance provides a monthly benefit to replace lost income if the business owner or key employee becomes disabled, either through injury or sickness, and is unable to perform the important duties of their occupation after being disabled for a specific period of time. If the premiums are paid for with personal after-tax dollars, the benefit received is 100% tax-free. Disability benefits can be offered to employees as part of a group insurance plan or the benefits can be purchased privately. Group insurance benefits have limitations and it may be necessary to top up or supplement a group plan with private coverage to ensure proper coverage.
Critical Illness Insurance
Critical illness insurance can be used to provide financial support for the company in the event that one of the shareholders or key employees suffers a critical illness and is unable to work for an extended period of time. As an added perk, premiums paid into critical illness insurance plans can be fully refundable, if no claims are made.
Key Person Insurance
Key person insurance is life, disability or critical illness insurance on the life of a key employee. It protects the business from the loss of their services. The money provides the business with cash flow to offset the loss arising from the key persons absence. The benefit can be used for recruiting and training a replacement, improving sales and productivity, overhead expenses, and revenue.
Business Overhead Expense Insurance
Business Overhead Expense (BOE) insurance is available to qualifying businesses and business owners and is designed to pay ongoing business expenses while the business owner is disabled and unable to generate revenue for the business. It can meet operating expenses and keep the business afloat while the owner recovers.
Group insurance policies provide a variety of benefits that are often packaged together, including medical and dental benefits, disability benefits and life insurance. Coverage is offered by a plan sponsor to a group of people who have some form of common association with that sponsor. Group plans can be beneficial in retaining employees.
Health Spending Accounts
Health Spending Accounts (HSA) can be set up by incorporated small businesses. These accounts allow the business owner the opportunity to tax deduct personal medical expenses through their corporation as a business expense. The plan can benefit both the business owner, the employees and their families. It is a great way to offer health and dental benefits to employees without setting up a costly group insurance plan. For employers with group insurance plans already in place, an HSA can be used to supplement the group plan by providing additional benefits to their employees not covered in the group plan.
A Buy-Sell Agreement is used to provide direction for the shareholders of a business with respect to certain major life events where they may want or need to buy or sell the shares in the business. These events include such things as death, disability, divorce, retirement, buyout, etc. The agreement protects the individual business owner’s interests, the business itself and the business owner’s family in the event of a dispute in any of these key areas. Buy-Sell Agreements can be an important tool in a business owner’s Estate and Succession plans
Business Owner Estate Planning
Estate planning is essential to the survival of a business. If the business owner becomes deceased, what happens to the business? A properly drafted estate plan can ensure the survival of the business and ensure that the business owner’s family is cared for financially.
Business Owner Succession Planning
While generally not a high priority for young professionals, it’s never too early to start considering an exit strategy from your business. Succession planning ensures that your business can continue to run smoothly after you move on to new opportunities, transfer ownership of the business or retire.