Wealth Strategies: Compelling reasons for business owners to consider life insurance

Being a business owner carries countless added responsibilities regardless of the size of your business. There are various circumstances whereby advanced planning is required to either avoid or minimize potential issues that could adversely affect your business, family and/or employees. Insurance once again comes into play to help resolve or alleviate these relevant issues as follows.

Death of a Key Person

Small businesses especially rely on key people to perpetuate their business, as do larger operations. Obtaining insurance on a key person can provide cash to the business in order to help absorb financial consequences while in search of a replacement. Many lenders also require key-person insurance whereby a portion of the premiums would be deductible for tax purposes.

Estate Equalization

For business owners that have one or more children, but not all of them work within the business, one must take into account their individual objectives, involvement etc. For example, it often makes sense to leave share of the business to the child or children involved in the business. For the children not working within the business it may simplify things to obtain insurance payable to those not involved, and avoid potential future conflicts within the family.

Taxes Owed Upon Death

When you pass away, you’re deemed to have sold all property which would include private company shares. The lifetime capital gains exemption is available (up to $848,252 2018 for qualifying shares) but for amounts above this significant tax may be levied on your estate. The amount owing will need to be generated from somewhere and hence life insurance once again simplifies the potential future tax liability. The corporation can pay the premiums as opposed to paying individually and incurring additional tax after issuing salary or dividends.

Providing for Heirs

If you’re one of several shareholders within a business, opting for insurance would provide funds at the time of your death to the remaining shareholders/company to purchase the shares from your estate. This will simplify things for the business and your heirs going forward, and provide the latter with immediate funds.