Business Entrepreneurs: Why Term Life Insurance Matters

21 October 2015
 Categories: Insurance, Articles

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You've had a great idea for a new business venture.  After developing a sales plan and securing a few investors, everything seems ready to go.  The only thing is that you need to think about insurance.  Along with business coverage, you also need some personal insurance.  One of the best options for the present is to secure a term life policy.

Why Personal Coverage?

Entrepreneurs often plan for using something like commercial insurance Meyer's Insurance Ltd to cover their investors in the event that the great idea turns out to be not so great after all.  The right business insurance will cover many of the expenses associated with shutting down or exiting a business operation.  What these plans will not do is provide much protection for the family if the founder and owner should pass away without warning.

This is where the concept of term life coverage comes into the picture.  In Canada, it is possible to secure this type of life insurance with a 25-year term, or terms that remain in effect until the age of 65, whichever comes first.  Having this coverage in place will mean that even if all the business assets are exhausted as part of the shutdown, there will still be money to support the family and cover any final expenses.

The Affordability of Term Life Coverage

Unless you have a great deal of personal wealth, term life coverage offers the benefit of a low premium in exchange for a cash disbursement to the beneficiary when you pass away.  While it does not include perks like building cash value of serving as a way to bundle assets the way some forms of whole life will, it does fit into your limited budget much easier. 

Dealing with End of Life Expenses

During the first few years of your business venture, money will be tight.  After all, it takes time to grow a business and turn a profit.  What would happen if your operation was not quite there yet and you are killed in an accident?  How would your family deal with the sudden loss of whatever income the business was providing at the time, and could provide in the future?  The disbursement from the term life plan will keep the family afloat and give them time to decide if exiting the business is the right move, or if continuing the operation is viable.

Taking Care of the Deemed Disposition Tax

While Canada does not impose a death tax, there is an obligation that is referred to as a deemed disposition tax.  Essentially, this is a tax that is imposed on any investment assets you own as of the day of your death.  Even if those assets are not sold, they are still assessed based on what they would bring in if they were sold.  If some of those assets happen to be associated with your business, things could get complicated quickly.  This is especially true if your survivors have no desire to liquidate and need money to pay the tax.

With enough term life coverage, there will be money to pay the deemed disposition tax and not touch the company assets.  As it does grow to the point of profitability, the investment will provide ongoing financial support for your survivors, up to the time they choose to sell their interests in the business.

The fact that you do not have the money to purchase a whole life plan right now does not mean it is okay to leave your family unprotected while you grow your business.  Talk with an insurance broker about term life options and balance the benefit amount with the premium that you can reasonably afford to pay each month.  Remember to focus on term plans that can be converted to whole life plans after your business takes off.  Doing so will ensure that no matter what, your loved ones will have the resources they need to keep going.