Life Insurance for Business Owners
Your business can become a source of income and security for your family long after your death, and it’s your choice when it comes to how your legacy lives on.
A personalized business life insurance plan that provides a tax-free payout to loved ones, heirs, and partners can be one of the best ways to ensure they’re left with every opportunity to continue confidently running the business.
The importance of life insurance for business owners
Life insurance for business owners is one of the most cost-effective ways to lower the financial risk of owning a business. The right kind of coverage provides three essential forms of protection:
1. A way to keep the business running
Life insurance buys time for everyone to manage the sudden loss of a leader and get new management up to speed. It can help pay bills, make payroll, invest in training, and even cover unexpected legal or recruitment costs.
2. Protection for your family
Business life insurance can help replace some or all of the income your family has been relying on. Even if they stand to inherit business assets, such as a building, as part of a succession plan (i.e., a document describing how a business will be transferred to new owners, typically family members), they may still need access to money while your affairs get settled.
3. Less stress right now
It can be easier to make long-term decisions about your business when you know that the risk to your family’s security is minimized thanks to life insurance. For example, you can spend money or take on debt now without worrying about how it might affect the amount of money you’re able to provide your heirs.
These are three solid reasons to implement a business life insurance plan as soon as possible. To get started, explore the main types of coverage below. When the time is right, a Serenia Life advisor can fine-tune the details.
Get a Quote from a Licensed Advisor
Types of life insurance for business owners
The type of business life insurance you choose depends on the size and structure of your business and whether you’re on your own or working with partners. Here’s how each type of insurance lines up with the needs of entrepreneurs like you.
| Type of life insurance for business owners | Who chooses it and why |
|---|---|
| Term life insurance is typically sold in 10-year, 20-year, or 30-year term lengths. Coverage expires at the end of the term. | If you plan to sell the business, you may only want coverage from now until then. Term life insurance lets you match coverage to the length of time you need financial protection. |
| Whole life insurance provides permanent coverage combined with savings and investment options. | A tax-free death benefit is one of the easiest ways to pass down wealth from one generation to the next. Unlike things such as buildings, land, or a family cottage, there is no chance the beneficiaries will have to pay capital gains taxes on this type of inheritance. |
| Universal life insurance is similar to whole life, but you can adjust the amount of coverage year to year. Learn more about the difference. | Owners who find it difficult to estimate their annual profits like this option because they can lower expenses by lowering the cost of insurance if they need to. |
| Key person individual life insurance is a backup plan to cover the cost of replacing or training someone to fill a vital role in your business. | Owners who rely heavily on the expertise of one individual cut their risk by making sure they can act swiftly to fill the role and keep the business running. |
| Joint Last to Die is a life insurance product that covers two people under one policy. The beneficiaries (i.e., the persons you choose to receive your life insurance payment in the event of your death) receive the payout when the second person dies. | This is ideal coverage for parents or siblings who own and operate a business together. It’s especially helpful when there is a significant age gap or one partner has health issues. At Serenia Life, we call this kind of coverage Business Partners Insurance. It's friendlier, don't you think? |
| Critical illness and disability insurance are what’s called “living benefits” because they kick in if you get sick or injured, instead of when you die. Critical illness insurance pays a one-time, tax-free amount that you can use any way you want. And disability insurance acts as replacement income to help you on the road to recovery. | Business owners who don’t have cash reserves that could be drained if they get sick or injured may choose this kind of coverage in addition to life insurance. It helps you avoid having to sell investments or going into debt to cover medical costs or lost income. |
Whether one of these options sounds perfect for you, or you know you’d be better off with a combination of policies that helps you achieve multiple goals, we can help you piece it all together.
If you’re still not sure which option is right for you, a licensed advisor can show you how each one fits into your overall financial, business, and legacy plans.
How life insurance helps with business succession planning
You likely have a long-term vision for the company you’ve built. If you’re ahead of the game, your wishes are well documented in a business succession plan that outlines who gets what, and your expectations for the future. Here’s how life insurance for business owners empowers everyone in your life to move forward:
1. Ensuring business continuity
You can have a say in who gets control of your business after your death, and ensure they have the money and legal rights they need to take your place. A simple document called a “Buy-Sell Agreement” can make it clear to everyone that you’ve already decided who can buy your share of your business, and for what amount.
2. Providing access to cash
A life insurance payout gives your family a variety of options. For example, they may want to take your place and become an owner in the business. This is a realistic option if there is a “buy/sell” agreement that allows them to do so. Learn about more ways to protect your business.
3. Protecting your heirs
The value of your business, or the portion that you own, may not be enough to provide the kind of financial security you want for your loved ones. Leaving a one-time, tax-free death benefit (i.e., a payment made to designated family members or other loved ones after you die) helps ensure their finances are taken care of after you’re gone.
4. Debt coverage
There are two reasons why business owners should think about company debt when determining how much life insurance to purchase. First, business life insurance will help your family pay off any outstanding business loans or debts. Second, you may feel more confident taking on good debt and investing for the long term when you know that it won’t affect the security of your loved ones.
5. Covering the loss of key employees or business partners
When a business relies on the specialized knowledge of one or two people, it can take time to replace them. Business partners should agree on who needs to be covered and how much money might be needed to do so. Having enough cash to offer a generous signing bonus may help you recruit the best candidate.
Determining the right life insurance for your business
The type and amount of coverage you need will evolve as your business grows and your financial situation changes over time.
Finding the right balance of coverage, cost, and additional optional benefits is easier with the help of a knowledgeable advisor. Book a no-obligation call with a licensed Serenia Life advisor to assess your needs and learn about the right insurance for your business.
Here are some of the many ways we can help you make the best choice and keep your coverage up to date:
| Assessing business needs | Paying off debt, securing your succession plan, and protecting family and employees are common goals. We’ll help you prioritize your needs and plan for growth. |
| Personal vs. business coverage | There are important tax and estate planning issues that affect whether you or the business should be the owner of your life insurance policy. We’ll help you choose. |
| Review and refine | Any time there is a change in your personal or business life, it’s a good idea to review your life insurance coverage. Taking on a business partner, getting married, or having a child are all big events that could trigger the need for changes in your coverage. |
How much life insurance coverage do I need for my business?
As an entrepreneur, you have two sets of priorities: your family and your business. Whether you choose a personal policy, a company plan, or a combination of the two, you need to determine the amount of coverage you need. We can help.
Here are a few things to think about ahead of your first meeting with a Serenia Life advisor:
- Are there debts that would need to be paid off immediately
- How much income would your family need and for how long?
- Will there be expenses, like signing bonuses and recruitment fees, to keep the business running?
- Is there a buy-sell agreement that needs to be honoured, and what will that cost?
- How much will it cost to reach your family’s long-term goals, like saving for education?
- Will your estate owe tax, and if so, how much?
Why choose Serenia Life for your business life insurance plan?
As a member-based organization whose roots go back nearly 100 years, we encourage kindness by sharing our profits through community outreach, fundraising, and unique member benefits that help Canadians support their families and their communities, including:
- $2,500 postsecondary scholarships
- Up to $600 towards fundraising events, and up to $400 to help with the cost of volunteering in Canada
- Financial support when you hire a lawyer to draft or update your will
- And much more!
View a full list of our member benefits
Is now the time to get business life insurance?
Purchasing business life insurance can protect your loved ones and give you the confidence to make long-term plans in the best interest of your business. Reach out for a complimentary needs analysis today!
