Expecting the Unexpected: Preparing Your Business for Death, Disability and Serious Illness

22 Mar Expecting the Unexpected: Preparing Your Business for Death, Disability and Serious Illness

A Canadian man can expect to live to age 80, while a woman can look forward to 84 years of life. But if you think you’re invincible, think again.

Especially in later years, life can be hard. Accidents happen. Illnesses crop up unexpectedly. And if you’re the owner or key player in a business, it will be hard to replace you if you can’t show up to work every day for some reason.

Businesses need to take steps to protect themselves from this kind of loss by protecting their most important people.

Key Person Insurance

If your business has one or two-star players who bring in the most revenue or make the most reliable decisions, it may be a good idea to consider Key Person Insurance. If one of those key people dies suddenly or becomes disabled, your business may suffer.

This type of insurance pays out a set amount of money each month, usually for a year. While the money isn’t typically as high as the full salary, it does cover a significant portion.

The money from these policies can be used for:

1. Income replacement: The family will need a sufficient income to continue with a reasonable standard of living, even without income from the company.
2. Recruitment: The business may need to recruit, hire and train a replacement.
3. Share purchase: The company will require sufficient funding in order to acquire the shares from the deceased’s estate at an appropriate purchase price.
4. Business survival: A major change in a business is a challenge for everyone. The money can be used to reassure lenders, customers and others that your business is still up and running.

Critical Illness Insurance

More and more people are developing serious illnesses such as cancer, heart disease and stroke. The recovery period is necessary and important – but it can throw your business off course and add a lot of extra pressure for your family.

That’s where critical illness insurance comes in. This type of insurance can provide you, the business owner, with a single lump sum payment to help you recover while your business continues to operate without you.

The money received from this policy can be used in a variety of ways, including:

1. Family support: This income can provide financial support to you and your family while you’re away from work. If necessary, it can serve to separate the shareholder from the company and to maintain goodwill and comfort at a stressful time.
2. Healthcare: This component should offset the costs of healthcare due to illness, treatment or even personal care. This can include medications, medical devices, treatment not covered by provincial plans, out-of-country medical treatment, and even expenses associated with treatment (i.e., gas, hotel, parking).
3. Crisis fund: The company must be able to continue functioning as best as possible, even without you. The company may need funding to hire replacement personnel, to subcontract and complete projects or to recover losses.

Most importantly, it serves as a kind of retirement protection system. An influx of cash when you need it most means you won’t be drawing down your retirement savings or corporate investments in order to fund the business during your time of need.

Take appropriate steps

When your business rests on the success of one or two contributors, it’s a good idea to consider how your business would survive if they were suddenly out of the picture. An insurance policy that provides support to the business and the individual is often the best way to achieve that.

To learn more about protecting your business, contact us.

Joel Rose

With over 35 years of experience, Joel Rose helps families – and their businesses – to prepare for the future. He offers guidance and support to help his clients create estate plans and succession plans that meet the needs of the whole family. Through his extensive professional and personal experience, Joel is known for his compassion and his ability to find a creative solution to meet each family’s needs.