How can business owners use life insurance to their advantage?

Corporate ownership of a life insurance policy, however, has its share of advantages and drawbacks – and depending on how it is managed, this form of cover can play a crucial role in helping a business move forward.

Read more: Canadians to cut down on expenses in 2022, except on insurance – survey

How does life insurance for business owners work?

Corporate-owned life insurance can be tailored to meet the different needs of a business. Policies generally fall into two categories, with each type working differently.

1. Term life insurance

As the name suggests, business-owned term life insurance provides coverage for a specific period or “term,” typically five, 10, or 20 years. Premiums stay the same for the duration of the term and are relatively less expensive compared to those of permanent life insurance.

This type of policy is often used during working years, providing financial benefits when the business owner dies. The funds can be utilized to replace lost income and cover liabilities.

2. Permanent life insurance

Permanent policies offer guaranteed lifetime coverage and come in many forms, including whole, participating, and universal life insurance. Apart from financial protection, permanent life insurance provides a tax-deferred investment component – ​​which is subject to a limit – and a cash value element that builds up over time and can be used as collateral if a business decides to borrow.

If the policy is voluntarily terminated before maturity or death, the insurance company pays the policyholder the cash surrender value. Permanent life insurance plans often play a key part in estate planning, allowing businesses to accumulate value long-term and cover estate taxes.

Read more: More than half of Canadians lack a financial plan – Sun Life survey

How can businesses use life insurance to their advantage?

There are several instances where

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