Business Overhead Expense Insurance

As a business owner you work very hard to keep your business up and running and profitable. The last thing you want is for your business to suffer or be at any financial risk due to your inability to work because of an illness or disability.

The best way to reduce the financial effects on your business is Business Overhead Expense Insurance. With BOE, you choose the level of reimbursement coverage desired (ie $10,000/month) and once the definition and criteria for disability has been met, the company will begin to be reimbursed up to the level of chosen protection.

Reimbursement is payable for regular ongoing expenses (usually fixed) such as Salaries, Rent/Lease, Utilities, Insurance, etc. With the continuation of payment for these expenses, the impact of an illness or disability on your business can be dramatically reduced and can help your business survive until you are able to return to work.

Buy/Sell Insurance

  • Buy/Sell Life Insurance
    • Corporate Life Insurance is extremely important to keep the stake of the company in the hands of its original owners.

      Your business would be at great risk should your deceased partner’s spouse become your new business partner with ownership in the company.

  • How it works:
    • With Buy/Sell Life Insurance the Corporation owns a separate life insurance policy on each partner for the value of their share in the company. In the case of death of a partner, the lump sum value would be paid to the corporation and can be used to buy the shares from the deceased partner’s trust.

Buy/Sell Disability Insurance

Business owners face the same level of risk for disability a 1 in 3 chance of being disabled before the age of 65.

The disability of a partner can be detrimental to a business. Without insurance, most businesses can be stuck in limbo for years without many options for moving forward and dealing with the total disability of a partner. It can be very challenging to come up with the money to buy out the partner’s shares and negotiations can be a lengthy procedure causing the business to suffer significantly.

  • How it works:
    • With Buy/Sell Disability Insurance the Corporation owns a separate disability insurance policy on each partner for the value of their share in the company. In the case of disability of a partner, the lump sum value would be paid to the corporation and can be used to buy the shares from the disabled partner.

      Group Critical Illness Insurance

      Critical Illness Insurance is an important enhanced benefit that should be offered to protect the income of your executive level employees. It is an attractive benefit that helps to attract and retain key talent.

      As an employer, you can know offer Critical Illness Insurance in a grouped policy and structure it so the premiums are 100% tax deductible to the company and the benefit is received 100% tax-free to the employee.

  • How it works:
    • You create a class with 2 or more employees that you want to offer this benefit to
    • The company pays the premiums for the individual CI policies
    • The policies are grouped together as a Grouped Accident and Sickness Plan
    • Premiums are 100% tax deductible to the corp
    • If the employee is diagnosed with one of the 22 covered illnesses, they receive the lump-sum payment tax free and can spend the money as they need.

Corporately Owned/Shared Life Insurance

Most business owners want to pay for as many things as they can through their business. Your life insurance coverage can be one of those things. And for business owners with a profitable incorporated company, shared ownership is a strategy to avoid giving up half of your money to the government and involves setting up a life insurance policy on yourself owned by your corporation.

Life Insurance is one of the last remaining legal structures that receives preferential tax treatment in Canada. By using after-tax corporate dollars (retained earnings) to pay for your policy, you are setting up a non-taxable benefit and your estate and beneficiaries will receive the payout tax-free.

By setting up a certain type of policy known as Universal Life, you can dump extra money into the policy over and on top of the cost of insurance to allow your investments to grow tax free, just as they would in a RRSP. Furthermore, just like a RRSP you have the option of selecting from a variety of investment options such as GIC’s, segregated funds, etc.

The kicker however with life insurance, is that the funds invested inside the policy can be used as leverage and accessed personally during retirement with only having to pay minimal tax. This means that in addition to having a large amount of money set aside for retirement, you will also end up with a fully paid-up life insurance policy that has been paid for with your company’s after tax dollars, saving you a large amount of taxable income, and most importantly benefit your family once you are no longer here.

In order to set this up correctly, you must work with your accountant and an life insurance expert to make sure all of your bases are covered.

Key Person Insurance

There are many companies were the profits and success of the company are attributed to one or two key people within the organization.

Given this situation, the survival of the business would be in great jeopardy if the key employee was no longer able to drive in revenue due to a serious illness or disability.

  • How it works:
    • Key Person Insurance is designed to replace the lost profits of a company in the event of total disability of a key employee.

      A key employee must have minimal ownership in the company, must possess unique skills that would be difficult to replace, and must provide work that would cause measurable impact on the company’s profits should they become disabled.

      If your business is dependent on the contributions of a key employee, Key Person Insurance should be an integral part of your business plan.

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