You work hard to build your business, right? From many sleepless nights wondering if it’s all worth it, to the feeling of exhilaration when you achieve a new milestone – it’s all part of the entrepreneurial journey!
I love the new year because it gives us a chance to reset: to take stock of the good, bad and the ugly of the previous year and to tweak our strategies and goals for the days ahead.
One thing I would encourage you to include in your 2018 plans is a way to protect all the effort you put into your business, because, let’s face it – life happens. Insurance is a great way to do this, but did you know there are many ways you can leverage insurance as a business owner?
Here are just a few guidelines and examples to consider, depending on what stage your business is at:
SELF-EMPLOYED / SOLE PROPRIETOR
You wear most of the hats yourself (administration, operations, sales etc.) and are personally responsible for everything in the business. Your personal assets can be used to run your business.
- Who will wear all those hats if you become sick or disabled?
A Disability Insurance or Critical Illness Insurance Plan can provide funds to allow you to hire someone while you recover.
- What happens if you pass away prematurely?
Creditors can claim your business debts from your estate, and the burden usually goes to your family. Proceeds from a Life Insurance Plan can bypass the probate process and be given directly to a beneficiary, so debts can be paid off.
Your family can also use the proceeds to keep your business running.
You and one or more partners pooled resources to form the business. You may have a legal agreement in place that outlines each partner’s costs, business roles and profit percentages. Each partner usually operates as a sole-proprietor.
- Who performs partner X’s duties if he/she becomes sick or disabled?
A Disability Insurance or Critical Illness Insurance Plan can provide funds to allow a replacement to be hired while X recovers.
- What happens if partner X passes away prematurely?
The proceeds from a Life Insurance Plan can take care of X’s debts, as well as allow his/her family to keep X’s portion of the business running.
On the flipside, X can assign each of the other partners as beneficiaries in his/her Life Insurance Plan, enabling them to use the proceeds to “buy out” X’s portion of the business. In an arrangement like this, each partner may agree to pay the insurance premiums for each of the other partners.
Your business is a separate legal entity and you are a shareholder in the company. There are usually “key” persons in your company who are crucial to the success of the business. You may be a key person yourself, or perhaps your director of sales (since he/she brings revenue into the company).
In this case, insurance premiums for key persons are paid by the corporation and the corporation is the beneficiary. Your personal assets and insurance policies are separate from the corporation.
- What happens if a key person becomes sick or disabled?
A Disability Insurance or Critical Illness Insurance Plan can provide funds to allow the company to continue functioning while the key person recovers (payroll, overhead expenses etc.).
- What happens if a key person passes away prematurely?
The proceeds from the key person’s Life Insurance Plan go to the company to allow the company to continue functioning while a replacement is trained.
Sometimes the key person cannot be replaced and the company must be dissolved – the proceeds can be used to pay severance to employees.
Your situation may be different of course, and it’s always best to seek advice that meet your specific needs. Depending on your business, you may also want to consider property insurance, liability insurance and health insurance.
See other ways you can protect your business: https://www.canada.ca/en/services/business/protecting.html
Kim Lowrie is an insurance agent and mutual fund representative with World Financial Group.
She and her husband have made it their lifelong mission to help families, individuals and business owners succeed financially.
To find a solution that best fits your needs and goals, connect with Kim: