How Canadian Entrepreneurs Can Protect Their Assets with Business Life Insurance
Most people often think that life insurance is something you get to protect your family and keep them financially secured when you’re gone. While it may be true, few people understand that it can also impact your business too. Unfortunately, it’s not something most people usually prioritize when starting a business.
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Most business owners use their savings to invest in their company. When you die, life insurance will protect your business as well as your family who are left with the expenses of your business. Experts say that life insurance is probably the best type of coverage you can get for your business.
Why Should You Protect Your Business from Financial Risks?
Every business owner needs life insurance as they face all kinds of risks while running their business. What exactly is a risk? A risk is the possibility of an event happening and dealing with its consequences.
With this in mind, business owners should know practice risk management wherein you follow processes on how to properly deal with these risks. It focuses on the things that can possibly go wrong while assessing the situation. At the same time, coming up with solutions to deal with it.
Businesses who practice risk management are more prepared to deal with problems in case they arise. No one wants to think of potential problems ahead such as a disability or death. However, a business owner should be able to anticipate all the possibilities. Hence, in this guide, we’ll show you how you can protect your business from financial risks.
Why Business Owners Need Life Insurance
When you have a business, there are a lot of people depending on you for their daily living needs including your family and your employees too. Having life insurance ensures that their needs can be continuously met and their livelihoods secure in case you pass away.
At the same time, acquiring a business life insurance a practical solution when it comes to your business as it can prevent your company from absorbing financial loss, debts, liabilities, and other potential problems that may happen when you’re gone. In addition, it can also help sustain your business through tough times such as temporary cash flow so that your company can continue to operate.
Here are some reasons why you need life insurance. You can also ask our experts at Save Corporation Tax.
1. Serves as a replacement for your income.
If your family is relying on you financially, they will need money to be able to continue to live a comfortable life when you’re gone. One way to do this is through life insurance.
However, you need to consider several factors including debts, mortgage, bills, loans, education, and retirement among many others.
2. Protects your collateral.
Most business owners take out loans in order to put up their business. In some cases, they also use their personal assets as collateral.
When you pass away the collateral becomes due. In case you put your house as collateral then you are putting your family at risk of having no place to live. At the same time, you also need to factor in business-related costs, expenses, and debts.
3. Protects your business in case you lose a key person.
Key person insurance is a form of life insurance owned by the company. This helps keep your business afloat in case you or an important member of your company dies.
If this happens, the company pays the premiums and becomes the beneficiary of the policy. In case you die, the insurance provider pays your company your death benefits. Meanwhile, your company can use the money to pay off the business expenses, losses or debts.
4. Can be used in buy-sell agreements.
When you have a partner in your business, a buy-sell agreement should be a part of your planning. In case one of you dies, it will help identify the successor to the business.
This type of contract identifies the terms, price and other important details if the remaining owners want to buy the business shares of the deceased. Technically, each partner buys coverage of one another. When one of them dies, the remaining partner receives the death benefits and uses it to buy the shares of the deceased in the company.
Business owners need life insurance to be able to buy out the shares of their deceased partner. At the same time, fund a buy-sell agreement. Otherwise, the business will be at risk.
In addition, solo entrepreneurs also need life insurance. Some people think that when a person sets up a business by himself, then he doesn’t have to get business life insurance. However, if you have employees that are relying on you and will be negatively affected when you die prematurely, then you also have to protect them from financial risks.
How to Protect Your Business from Potential Risks
1. Evaluate the risks.
This step helps you identify the potential risks that may harm the business. This way, you can decide better if you should face the risk, take action or minimize it.
So how do you do it? Experts suggest placing a rank on each potential risk. You can use the probability and consequence as a basis for each risk. Most business owners identify the risks by low, medium, and high probability.
Afterward, compare each to your business plan and strategy. Don’t forget to factor in the costs, requirements, and other concerns. You can also use tools to help you evaluate the risks such as a risk map where it rates each item based on significance. Assessing the risks helps you direct your money and prioritize more important risks.
2. Manage the risk properly.
There are different ways to deal with risks. You can accept, transfer minimize or eliminate it.
However, it will all depend on how you evaluate and act on each risk. Some business owners may accept a risk instead of rejecting it due to the cost. Others may prefer to transfer it which usually happens with insurance. Meanwhile, some eliminate the risks by changing their process and operations.
The important thing is that once you’ve identified the risk, the next step is to decide how you will address it. Remember, risk management requires continuous evaluation. You cannot control when potential risks may arise.
Therefore, these risks should always be identified, assessed, and properly addressed. Business owners can set up a risk management policy. The way you handle the risks has a significant impact on your business.
3. Choosing the best insurance for you.
After following the steps above, the next one you need to take is to pick the right type of insurance that will help protect your business from financial risks. In business, life insurance can help protect you financially by providing your family with compensation in case you die.
Having said, there are also different types of business insurance policies available. In some situations, an insurance policy is required. Meanwhile, some risks are deemed uninsurable too.
Protecting your property against damage is one of the things many business owners should consider. Other types of insurance include business interruption, products liability, and life insurance. When it comes to life insurance, you can choose between key man insurance or group life insurance.
Key man insurance protects you from the financial losses and costs when you lose an important employee. Meanwhile, a group life insurance is often part of an employee’s package and benefits wherein the payout offers a lump sum to the family of the insured in case the employee dies.
How to Buy Life Insurance as a Business Owner
Is purchasing insurance the same regardless if you’re a business owner or not? Technically, the process is the same. You need to identify how much coverage you need for your business.
Financial experts recommend comparing quotes from various insurance agencies first to see which one will work for you and your company best. However, what makes business owners different in terms of buying life insurance is that they may need to purchase multiple or group insurance policies not just for themselves but for their key employees as well.
Nonetheless, the process may become a bit complicated, especially when you’re dealing with an amateur broker. Hence, when you’re dealing with bulk policies, make sure you talk to a professional, reputable, and reliable insurance provider to help you with the process.
Bottom line
At the end of the day, not all business owners are the same. Even businesses have different needs. The importance is to understand how life insurance can work for you and how it can significantly help protect your business from financial risks.
Once you have all the information at hand, you’ll be able to decide and incorporate the necessary steps to create a process that will work for your business best. Life insurance helps provide stability and peace of mind that in the event you pass away, your family, business partner, employees, and your business will have financial support and security.
