Your business can purchase life insurance for you, usually at a rate that is much lower than purchasing individual life insurance, and there are many benefits for your business.
There are some areas where having your business pay for life insurance does not work out in the way that you think, so understanding what goes on is important for making an informed decision.
Why Businesses Purchase Life Insurance
Businesses might want to purchase life insurance for a number of reasons related to the health of the business and the employees.
Businesses can be protected in the event that key employees, business owners, and shareholders die unexpectedly. Life insurance policies offset the costs of covering their responsibilities and finding a suitable replacement. They can only create a streamlined path for business succession.
Life insurance policies on individuals can improve company morale and help families in the unfortunate event of death. The payout of a policy can offset outstanding debts, pay for funeral expenses, and provide after-death care for individuals dependent on the person’s income.
What Kinds of Life Insurance Can My Business Pay For?
Businesses can purchase life insurance that covers a specific term (example: 10 years), or whole life insurance and estate planning life insurance that covers whole life. Understanding the difference between these types of policies can help you consider the benefits of having your business pay for your life insurance.
Term Life Insurance
Term life insurance covers you for a specific period of time, usually 10 or 20 years, but the term can be adjusted as needed. You can even extend term life insurance if you surpass the policy period.
Term life insurance helps do things like replacing lost income and providing a safety net for beneficiaries and covering the cost of after-death expenses.
Term life insurance is a cheaper option because it has a set end date.
Whole Life Insurance
Whole life insurance covers an individual for the duration of their life, and because of this, you can expect a higher premium. Whole life insurance does have a cash value, and it can function as savings and accumulate tax.
Whole life insurance policies work well to transfer wealth onto beneficiaries after death.
The Cost of Life Insurance for Businesses
Life insurance bought through a business is usually much cheaper, even for a policy that is the same amount as what you might purchase as an individual.
Most businesses have access to group life insurance policies that are discounted because of their group pricing. The cost of these policies, especially term life insurance, is minute compared to the potential costs of not offering them.
Businesses without life insurance might notice a decrease in employee performance due to stress over the post-life care of their dependents.
When you let your business pay for your life insurance you can also include terms that cover its care after you die, including allocating funds to keep the business afloat and defining how your shares will be passed on.
Is the Purchase of Life Insurance Tax Deductible for Businesses?
The purchase of life insurance can be tax-deductible for businesses, but this is not always the case.
If the business is the beneficiary of the policy then, in most cases, the amount of the premium is not tax-deductible. This is because the goal is for the business to have these funds returned at some point, even if it is a long-term situation.
Individual insurance policies that payout to employees’ dependents or other entities may qualify for tax deductions.
Can Life Insurance Benefit Both My Business and Personal Life?
Your business can purchase a policy to cover different parts of your life, and having the two areas covered can create an easier transition for the business and individuals in your life.
Business-related life insurance policies can help mitigate the damage in the event of your death, providing security for those who work with and for you. These policies help keep the business functioning after you pass. Even if the business does not survive your death, a life insurance policy can provide a sizable severance to assist employees in taking their next steps.
Life insurance policies are also useful for paying out to your dependents and those closest to you outside of your business. Policies can pay out to cover your end-of-life expenses, debts, and assist in day-to-day expenses.
The Pros and Cons of Businesses Paying for Life Insurance
Having your business pay for your life insurance is generally well-accepted and desired, but there are a few things to consider before committing to this move.
Pros
Businesses can usually purchase a larger insurance policy for less money, so you can have a policy with more coverage than you would purchase on your own. Depending on who you list as the beneficiary of your policy, your business can also benefit from tax deductions on this expense.
When you incorporate your business in your life insurance policy you provide protection for the health of the corporation and your employees in the unfortunate incident of your death. This increases the security of those employees and can help keep your business strong for your future generations.
Cons
While life insurance can be tax-deductible for your business, this is not always the case. You may find yourself in a situation where you are deferring tax payments to be deducted at a later date.
The rates you have for life insurance through your business are also prone to change over time as your business changes. This can be for better or worse, but it can be difficult to plan future fluctuations in your premium.
Final Thoughts
Not only can your business pay for your life insurance, but there are many benefits linked to doing things this way. You can even purchase multiple policies, both through your business and on an individual basis, to unlock the full benefits of life insurance.
To understand these benefits better and make a decision that is best for your situation do not hesitate to contact Sim Gakhar. Speaking with someone who understands the intricacies of Canadian life insurance is the best and easiest way to determine what your next move should be.
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 executive of the business by acquiring a key person life insurance policy.
Other FAQs Regarding Life Insurance as a Business Owner
- How Does Life Insurance Policy Work for Business Partners?
- How can I Protect a Business Loan with Life Insurance?
- What Are Some Myths Business Owners Believe About Life Insurance?
- How Can I Protect My Employees With Life Insurance?
- What Are The Benefits of Life Insurance For My Business?
- Why Should I Choose Term Life Insurance As a Business Owner?
- How Much Does Life Insurance Cost for Small Business Owners?
- Does Whole Life Insurance Accumulate a Cash Value for My Business?
- What Are My Life Insurance Needs As a Business Owner?
- A a Business Owner, Why Should I Select Whole Life Insurance?
- How Does Key Person Life Insurance Work?
- Is Life Insurance Taxable in Canada For Small Businesses?
- How can Life Insurance can Help Me as a Small Business Owner?
- How can Whole Life Insurance Help my Small Business?
- How can my Business Benefit from a Universal Life Insurance Policy?
- Why is Life Insurance Important as a Business Owner?
- What Types of Life Insurance is Available to Me as a Business Owner?
- Can I Purchase a Group Life Insurance Policy for My Company?
- Are There Any Strategies That I Should Follow When Purchase Life Insurance for My Business?
- What are The Best Life Insurance Products Available to Business Owners?
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