Hey business owners, guess what – You are an important person – be proud…that president title is great! You are a key person in your business – without you the business wouldn’t exist. If you are just starting up, you can also refer to my article on October 3, 2007 that deals with information that you need to put together to speak to your insurance broker (or me if you choose) regarding your Property and Liability Policy.
Being a key person, you are more than aware that if something happens to you – your business suffers! You have to think about who is affected by your inability to perform and be the key person in that business – family, employees, dog etc.
So what do you do and how much does it cost? There are many ways to insulate yourself and your business from a loss of its key person – including critical illness insurance, business expense insurance coverage and life insurance coverage. Let’s look at one option, Universal Life Insurance for Start Up business owners:
Let’s face it: Starting up a business is hard – you don’t have alot of money to through around. You have taken out a loan and I think we can agree that as much as the bank wants you to succeed, they are not a charity – they want to guarantee their money.
A universal life policy can be made to work to your advantage:
1. In the beginning:
the business is growing and you ca take advantage of the minimum premium option of Annual Increasing cost of insurance – you pay the minimum premium which increases annually which is cheap now that you are young.
2. Fast Forward 10 Years:
Over time, you can change the Annual Increasing cost of insurance to a Level cost of insurance at Joint First to Die (based on partners) – the deposit will even out and you may wish to increase the amount covered since your assets are worth more now. It may also be appropriate to change the ownership and beneficiary of the policy to the corporation. (the death benefit may qualify for a capital divident account treatment – The tax implication of this will depend on the tax legislation and assessing practices of the Canada Revenue Agency)
3. Fast Forward 20 Years:
The business is now well established, successful and probably debt-free. The owners are now concerned with estate planning and potential tax consequences. The Joint first to die would change to Joint last to Die and the deposits would decrease.
Insurance is a key component of your business and requires your careful consideration. Each business is different and each need is different. Set up and appointment because it is really important that you dedicate the time to discuss protecting the key people of your business. Remember time is money, and time well invested can reap significant rewards in the future!