Life Insurance for Business Owners
There are approximately 2,550,000 businesses registered in Canada, according to Trading Economics, and approximately 1.2 million of them are small businesses (businesses with at least one salaried employee), says StartUp Canada.
Small business owners have very different needs when it comes to life insurance than salaried employees. Here are just some of their specific needs:
1) They are unlikely to have group life insurance to fall back on.
2) They may have certain succession insurance objectives or needs that salaried employees don't have.
3) They may want to investigate a corporately owned life insurance policy.
Thankfully, they can help cover these needs with an individual life insurance policy. There are many different plans to choose from, and deciding can be a tad overwhelming, but your choice basically depends entirely on your budget and your life insurance needs.
Term Insurance is insurance recommended for a particular, short-term need, since it must be renewed after a stated length of time, such as ten years, 20 years, 30 years, or 40 years. The insured can use this coverage to do practical things such as pay of their debts, but be warned that the premiums start off low yet increase as the insured gets older.
Permanent Insurance provides protection until the policy matures, but the premiums must be paid on time to prevent the policy from lapsing. This style of life insurance usually comes in whole life, universal life, and limited-pay varieties.
Whole Life Insurance is a permanent insurance plan that provides coverage for the insured's entire life as long as the premiums are paid. Premiums remain level through the life of the policy, and these plans can also build a cash value that you can take out loans against. Whole Life policies can be non-participating: these plans provide only guaranteed values and participating whole life coverage, which includes a hybrid of both guaranteed and non-guaranteed cash values. The non-guaranteed values are typically a dividend, which are associated long-term interest rates and the insurance company's profitability.
Universal Life Insurance offers a little more flexibility in the form of adjustable benefits and flexible premiums. Throughout the life of the policy, the insured can change the amount of coverage necessary given their current life requirements at the time. The options usually are level death benefits or increasing death benefits, and on the premium side, a level-cost of insurance or increasing cost of insurance option.
Limited-Pay Life Insurance allows the insured to pay a level premium for a stated window of time — such as 20 years — before the coverage is paid-up entirely and the insured is covered for life.