Life Insurance for Business Owners

Life insurance serves different purposes for different types of policyholders. Business owners have unique reasons for needing life insurance, including ensuring their businesses can continue operating after they pass away. If you’re a business owner, consider what’s at stake and whom you might need to protect with a life insurance policy.  

Benefits of Life Insurance for Business Owners

Business owners who suddenly pass away leave behind a family, an ongoing business concern, and sometimes business partners and employees. Each of these stakeholder groups will have different financial needs.  

Families often must take care of final expenses such as burial costs and death year taxes. They may also need to replace any personal income that the deceased person earned from the business. Additionally, they may have to pay capital gains tax if they sell the company or its assets.   

The business may continue, even if only for the short term. The business might have outstanding loans or unpaid taxes, utility bills, subscription services fees, equipment and property leases, and outstanding wages. If the heirs decide to dissolve the business, it will take time to sell the assets and close operations, during which time the bills still need to be paid and potentially severance payments made.  

If the heirs intend to keep the business going, many of the same expenses will apply, and they may need to reorganize or hire new staff, all of which can be costly. Additionally, business partners may want to buy out the deceased person’s share of the business. A life insurance benefit may help them purchase and continue operating the business. The benefit can also be used to hire and train staff to replace the person who has passed away.  

In addition to the owner, key business employees can also be insured. If someone essential to the organization were to pass away, the business would need to find and train someone with the same abilities. The death benefit from the insurance could help cover many losses associated with the employee’s passing and expenses related to hiring a suitable replacement.  

Who Can Purchase Life Insurance for A Business Owner?  

Insurance on the life of a business owner can be purchased by the owner, their family, their business partner, other shareholders in the business, or by the company itself. The beneficiary can also be any of these people or groups. A business could, for example, be the purchaser and the beneficiary of a policy on its owner’s life. Partners in a business can also insure each other’s lives to protect the business regardless of which of them passes away first.  

 How Much Insurance Should a Business Owner Have?  

There are many variables that may factor into this, including: 

• Your anticipated final expenses (memorial service, outstanding income taxes, personal loans and other debts). 
• The income your family will need to replace. 
• Your business’s outstanding debts (loans, accounts payable, lines of credit). 
• The value of your share of the business if your business partner wants to buy it. 
• Ongoing expenses (rent, equipment leases, utilities, payroll, etc.). 
• Loss of income while the business reorganizes or hires staff to take over your functions. 
• Intangible assets such as goodwill, could decline in value when you pass away. 

Doing this type of calculation may seem daunting, but you already have most of this information on hand: 

• Your personal and business tax returns outline the amounts you earn from your business.  
• Your credit card and bank statements give you a record of your deposits, withdrawals, and expenditures, as well as your loan payments and details on your lines of credit and other financial instruments.  
• Your accountant or accounting software has your income sources, expenses, accounts receivable, and accounts payable.   
• You will have contracts on file that detail your leases, service agreements, and subscriptions.  

The optimal amount of life insurance may change over time as your business changes; reviewing your coverage at regular intervals should be part of your overall planning.   

 What Other Types of Insurance Should Business Owners Have?

Life insurance typically is designed to only pay the benefit when you pass away, but what if you need to take a break from work due to illness or injury? Consider layering your protection with: 

Even freelancers can benefit from insurance coverage: you still need to pay your bills and service any debts you may have while you’re off work. Similarly, contractors might want to subcontract their work so their clients aren’t left in a lurch. A small policy can tide these independent business owners over while they recover from illness or injury.  

Ready to look at some plans? Canada Protection Plan has lots of great options: comprehensive life insurance products, both term and permanent, critical illness insurance, and health and dental insurance to cover any unexpected large expenses.  

Are you travelling for your business? Canada Protection Plan also offers travel insurance.  

Our insurance products don’t require a medical exam, testing, or extensive questionnaires. If you’re in a hurry to get coverage, you have pre-existing conditions, or you just don’t like doctor’s offices, needles or giving fluid samples, we make it easy for you to get insured.