Key Person Insurance

Why a Key Person Insurance?

Have you ever wondered about the consequences of losing an individual that is important to the success of your company?

Small business owners are required to employ one or more individuals that will be a crucial part to the company’s success. That person can either have a special set of skills or be a business partner. Losing a key person under standard methods such as retirement or firing can be easy to adapt to without making much noise. However, losing a key person to death or disability can have drastic repercussions on your business.

Losing someone to death is never easy and can be detrimental for businesses who needed the deceased (or disabled). Not only can it caused disruption of the day to day activities, but sales/business development made by the person in question can become questionable; can it still be delivered? Can we pick up where that person left off? Those are very good questions that you have to ask yourself. It can rock the proverbial boat and propagate uncertainty to your employees, clients and creditors.

This is where Key person insurance comes into play and can be a great help for your small business in a time of need.

What is Key Person Insurance?

A key person insurance will ensure that your business lives on despite the unfortunate circumstances. Key person insurance (sometimes referred to as key man insurance or key woman insurance) uses life insurance to create immediate working capital for your company to meet current cash needs in the event of death of a business owner or key executive.

Companies can obtain corporate owned life insurance in order to ensure those who the business are dependent of. In simpler terms, this means the company is eligible to receive a tax free benefit in case one of the key-person becomes disabled or passes on. This will allow your company to breathe a little easier as this amount can either be used as reserve or paying the creditors.

Tax treatment: Whereas the key person life insurance proceeds can be paid out as tax-free dividends, the same does not apply for disability insurance.

What are the benefits of a Key Person Insurance

  • Helps your business pay off creditors
  • Hiring and training a replacement
  • It can be used to help relieve the burden put on your business due to any unforeseen event
  • Reassures your customers and investors
  • The insurance proceed received would be tax-free (no taxation)
  • Usage of the funds isn’t restricted
  • Reassures employees that the business can move forward
  • Key-person insurance premiums are tax deductible in Canada

How to determine if Key Person insurance is for your business?

When considering insurance for your business, in order to make a wise decision, ask yourself these questions:

  • Will the loss of a key employee disrupt the day to day activities?
  • Will it make my company lose a unique skill?
  • Will my clients be worried?
  • Will the loss of the key person affect cash flow?
  • How will business credit be affected?
  • Are there going to be training and recruiting costs?

How much is enough?

As far as the amount goes, you need to consider what your business needs and how much you can afford. We recommend you to ask quotes on the following amounts:

  • 100 000$
  • 250 000$
  • 500 000$
  • 750 000$
  • 1 000 000$

L.S. Financial Services Inc. is here to help and guide you in order to figure out the adequate  amount required to help the business get back on its feet all the while respecting your budget.

What if I don’t want to take Key Person insurance?

That’s quite a risk. When losing an employee over retirement or being fired, things can be easy salvageable as either way out were planned in advance, so task distribution can be planned ahead. No company can predict or plan the death of one of their key man or key woman. Although the backlash of a loss will greatly vary on many factors such as the nature of your organization, at least key person insurance will give you peace of mind and help your business get back on its feet and keep business as usual while you train your replacement.

Contact us for more information or to schedule a meeting

We work will all these insurance companies in order to provide you with the insurance you need at the best price.

insurance-manulife-financial insurance-BMO insurance-RBC
GIC-canada-life GIC-industrial-alliance insurance-transamerica
GIC-empire-life GIC-great-west-life GIC-sunlife-financial
GIC-ssq insurance-desjardins GIC-standardlife

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