Insurance for Small Businesses
As a small business, do you need insurance beyond the standard fire/theft/liability coverage on your location? Yes. Here’s why.
The death or disability of a key person could bankrupt the company
A key person is the person or persons that are critical to the operation of the company. It may be the company owner, the top salesperson, the industry expert. Without this person, your efficiency and profits would slide. What would happen to your company if that person were to pass away suddenly, or become disabled? The cost of finding, hiring and training a replacement takes months. During those months, profits sag. Key person insurance provides companies with the money they need to stay afloat if something happens to their most important shareholder or employee.
The sudden recall of a business loan
Most business loans are “on demand”. That means the lending institution has every right to demand payment of the loan at any time. This demand can come into play if the key person, company founder, or CEO passes away or becomes permanently disabled. In these cases, investor confidence is shaken, and lenders want to make sure they recoup their loans so they don’t suffer a loss. It’s a good idea to take out a term life insurance policy underwritten on the life of the key person so that if the loan is called, there is money available to pay it.
Unlike key person coverage, however, this money is designated for the loan, not hiring/training a new employee. The beneficiary, in this case, should be the bank. However, a term loan with enough money to cover replacement of the key person and the demands of a loan are also an option.
Funding a buy-sell agreement
Companies with two or more partners need a contingency plan in case one partner dies or becomes disabled. A buy-sell agreement lays out how the situation will be managed, but when it comes to purchasing the partner’s shares, few individuals have the money or resources to do so. Buy-sell insurance goes hand in hand with the buy-sell agreement. This insurance is paid out upon the trigger of a buy-sell event, and provides the funds necessary for the partners to fulfill the obligations of the agreement. There are several different options to fund the payments of buy-sell insurance to make sure companies of all sizes and profit levels can take advantage of this important protection.
Where does one buy these products?
Business insurance is available through most major Canadian life insurance agencies. Business owners can also speak with a life insurance broker. An agent sells only the products of their company (for example, Sun Life, BMO, etc.). A broker is a freelance advisor that sells the products of all the insurance companies in Canada. If you already have a great working relationship with a financial institution that also offers insurance, you may want to stick with an agent. If you would like to have your options compared, or are a company without ties to any one particular lending institution, check out a broker’s services.
Don’t let a lack of insurance bankrupt your company!
Business life insurance is all about mitigating your risks and making sure your company can carry on when affected by death or a severe medical event. Don’t let lack of business insurance be the thing that topples your growing empire. Take the steps to fully protect your company today.