Choosing life insurance is a personal decision, but when you own a business that decision often includes factoring in other people vital to your company’s success.
Small and large business plans should take into account partners or shareholders, especially outlining such procedures as transferring ownership or interests after a business partner dies. Financial advisors agree that there’s a great way to ensure your business’s financial security if that happens: life insurance.
Business partnerships exist in businesses small and large throughout Canada. They range from general partnerships, where each partner is equally and fully liable for debts, and limited partnerships, where liability may be split.
While many business owners have life insurance for themselves or their business itself, sometimes life insurance is left off the table when it comes to business partners. That could be a mistake.
Here’s a closer look at business life insurance options available for company partners.
The Main Types of Business Life Insurance
The two main types of business life insurance, term and permanent, can be used for both personal or corporate insurance and both can address business partnerships. The life insurance plan you chose for your business and business partners usually depends on your budget and the coverage length you desire.
Term life insurance covers a set period of time, usually 10, 20 or 30 years, and pays out benefits when the covered party dies within that set period of time. Permanent life insurance covers the entire lifetime of the insured.
It’s usually more expensive than term life insurance and can come with a savings account that grows over time and is tax-deferred.
Both offer different levels of protection for your business and its assets, as well as coverage for partners, employees, and their families. Term life insurance is popular if you plan on owning your business or being an active partner in it for a limited amount of time. For example, you may have a plan to sell your business after 10 years or leave a business partnership.
It’s also a good choice if your finances are more limited. There’s typically an option to move up to permanent life insurance in the future. Term life insurance can also protect you and your business if a vital partner or key person dies unexpectedly.
Permanent life insurance is a solid choice if you and your business partners expect to work with each other for the long haul — and can especially benefit from a savings plan. If partners decide to leave the business down the line, the accumulated cash value can be used as part of a buyout.
Another benefit of permanent life insurance for business partners: for retirement, each partner can own their part of the life insurance policy and use it to supplement retirement savings. With permanent lie insurance, you can build up wealth inside the policy and typically access it even while you’re still alive.
Key Person Insurance
One popular subcategory of life insurance for business owners is key person insurance. This type of insurance covers an important person — yourself, a business partner, or a vital employee — in the event that such a person cannot work.
Key person insurance helps you pay off loans and is particularly helpful as a way for you or a partner to buy the other partner’s share if they are leaving the business. It can also cover your and your family’s expenses if one partner is leaving. It’s all about having an easy exit plan and getting everything in place for a smooth business transition.
Key person, term, and permanent life insurance options for businesses also address the financial security of business partners’ families and loved ones, especially those who may take over the business in a partner’s absence.
Life Insurance and Buy-Sell Funding
Business experts often agree that having life insurance in your business plan is one of the best ways to ensure buy-sell funding when a partner or shareholder dies.
Buy-sell agreements outline business ownership transfer in situations such as death, disability, business disagreements, or retirement.
When a partner dies or is disabled, other partners or co-owners sometimes face a decision of continuing to be a part of the business, work with a deceased partner’s successor or heirs or cope with heirs receiving the cash value of an owner’s share and insurance policy payout.
Having business life insurance for partners ensures this process can go through smoothly. It can dictate the terms of the sale of shares. If partners have money available through life insurance, that can be used to buy a departed partner or co-owner’s share more easily than borrowing money for. a buy-out.
Since life insurance premiums within businesses are usually not tax-deductible, it could be more financially viable for business owners to have life insurance on a company or partners so that the company itself can pay the premiums.
Business life insurance funds can also go a long way to make sure remaining partners have enough cash on hand to find and pay a new partner who can replace the unique skills of a partner who has died or left the company. Business partner skills are not easily replaceable. Having business life insurance for partners gives you a financial buffer to find new beneficial partners.
How to Get Started with Business Life Insurance For Partners
It’s important to have professional help when developing your unique business life insurance policy that includes partners. By working with life insurance advent and investments advisor Ana Martinho your business plan will be comprehensive and complete in order to ensure the financial success of your business and co-owners for decades to come.
Ana, who helps business clients throughout Ontario, Canada, will work closely with you to review your needs, your business, and the many options available for business partner-inclusive life insurance. She can be reached via email at [email protected] or over the phone at 416-272-1300.
Make sure you have your and your business partners’ best financial interests at heart through a life insurance plan the covers not only what you need right now but what will help you the most in the future.
Essential Planning for Financial Security
Helping business owners and self-employed professionals grow retained earnings tax-free, pass more wealth to the next generation, and protect their biggest asset – themselves, the key person of the business.