Your hard work and dedication has paid off – the result of a successful business endeavor or a lucrative business that you built. You’ve established a comfortable lifestyle where you enjoy your beautiful home, drive a nice car and maybe even have a nice waterfront property. You may believe that your success means you don’t need life insurance because you can self-insure against the unexpected financial burdens life throws your way. But is that really the case?
For the average Canadian, life insurance provides protection for the family when there’s a death and the income stops. Life insurance can provide funds to help pay the mortgage or maintain a family’s quality of life when someone dies. But for successful business owners with millions in assets, or well-off people whose home is paid for and kids are grown, is life insurance relevant?
The answer is yes – and here’s why.
Life insurance does more than protect your ability to earn an income. It also protects your wealth – existing assets, including real estate holdings, investments and your business.
Life insurance is key to effective estate, business and lifestyle planning – especially in the getting ready and early stages of retirement. What was deemed a necessary expense or the ‘cost of protection’ in your younger years, now presents a valuable financial opportunity.
Take term life insurance, for example. For businesses with multiple owners, a buy-sell agreement sets out the conditions – such as disability or death – that give the owners the right to buy the other owner’s share of the business. Ideally, this agreement should be funded in a way that doesn’t cause financial difficulty for the company or the person being bought out – and that’s where term life insurance comes in. If an owner dies, the company or surviving owners (depending on how the insurance is set up) can use the insurance proceeds to buy the deceased owner’s share.
Through a buy-sell agreement funded with life insurance, a business owner can help ensure that the business’ successors have the money they need to buy the business for its fair price and can continue the business without excessive debt or instalment payments.
With permanent life insurance, a business owner can protect, and often improve, their financial position via:
• Potentially superior rates of return (compared to some other conservative investments such as guaranteed investment certificates and government bonds),
• Tax-effective wealth transfers to the next generation or from a corporation,
• Additional tax-free retirement income through a series of loans, using the policy cash value as security,
• Greater tax efficiency related to charitable giving, and
• Estate preservation.
Term vs. perm – the difference
• Term life insurance provides coverage for a specific period of time, such as 10, 20, 30 years or until a certain age. It’s an excellent lower-cost method to provide money exactly when it’s needed, whether that need is to protect your income or provide funds to support a buy-sell agreement.
• Permanent life insurance (including whole life and universal life) provides lifelong protection. It provides the same protection as term life insurance, but it can also help you grow and manage your wealth.
Because you’re a business owner or wealthy, your needs may be different from the average Canadian, but your need for a sound financial plan that’s designed to protect and grow your hard-earned assets isn’t. I can help you determine how much and what type of insurance you need.