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Life is unpredictable, and while we would all like to think that we are invincible, the reality hits home when we hear of an acquaintance’s passing, or we suddenly lose someone near and dear. Most people, especially those with dependants, understand the value of personal life insurance; but what about corporate life insurance policies? If a key stakeholder in your business were to pass away, how would your company be impacted? Would it survive the ramifications of potentially losing creditors, customers, assets and earnings?
While it is a complex product with multiple variables to consider, there are many benefits to purchasing corporate life insurance policies. Below are three reasons why owners and key stakeholders should seriously consider business life insurance.
1. Covering Payouts to Partner Dependants and Inheritors – A Buy-Sell agreement as part of business life insurance plan is a great option for those who have business partners. When a company owner passes away, families or beneficiaries might not be interested in taking on the added responsibility of running a business, which generally results in a buy-out. In this case, the surviving partner can use life insurance proceeds to buy out shares owned by the deceased’s estate, without any major ramifications on the financial and operational aspects of the business. Using the business life insurance to fund the buy-out means the beneficiaries will receive payment, without subjecting the company to major, and potentially devastating, cash-flow hits.
2. Tax Sheltering of Accumulated Growth – Depending on the way you setup your business life insurance plan, you can actually benefit from tax-sheltering the growth on the cash value of the policy. Any corporate investment is subject to a high marginal tax rate. However, if an owner were to deposit that cash into a business life insurance policy, the growth accumulated on that investment would be tax sheltered. Additionally, should a key stakeholder or partner pass, the insurance proceeds are not taxable to the company or to its shareholders once the pay-out is treated as a capital dividend.
That said, as of January 2017, the Canadian government will be implementing changes to taxation of payouts on business life insurance policies, for all new policies created in the 2017 calendar year. While the details of the changes are more complex to outline in this article, consult our team at BenefitDeck to fully understand why investing in a corporate life insurance policy before the end of 2016 would be to your advantage.
3. Easing Transitions of Key Leadership – Larger companies with senior executives can benefit from insuring key individuals within the company. For instance, if a stakeholder or C-level executive held close relationships or managed critical responsibilities, significant hurdles and financial strains could arise from their passing. Key person insurance helps to ease the transition of finding and ramping up a replacement to fulfill the loss of the key person. It also gives the business the additional cash flow required to re-assure creditors, maintain productivity and effectively service customers as recruitment efforts are underway.
Rely on Knowledgeable Consultants for Corporate Life Insurance
Having a plan for the unpredictable aspects of life is a valuable business strategy worth your time. While we have listed some precise benefits above, a corporate life insurance plan helps you to ensure business continuity and profitability in the event of someone’s passing. Since all the details of implementing a business life insurance plan might be complex, our team of experts at BenefitDeck can help. With some major changes to tax-sheltering being effected on January 1, 2017, contact our team today to learn how your company and its stakeholders can benefit from business life insurance today.
Whether you are with a business, association, or owner operator, we have the solution for your needs.