Going Into Business
Purchasing Life Insurance to Protect Your Assets
Most of the time, the success of a small or medium-sized business depends on a small number of shareholders (one, two or three) or on one key employee. The death of a key partner could be very damaging to the continuity of your business activities and very detrimental financially.
To protect yourself against financial problems, it is important to take out universal, term or permanent life insurance.
Life insurance can meet your requirements for:
- Financing a shareholders’ agreement
Taking out term life insurance to finance a shareholders’ agreement ensures tax-free payment of the capital required to purchase the shares of a shareholder who dies. The death benefit therefore prevents you from having to take out a loan to purchase these shares or to liquidate the assets of the business to settle the debts.
- Insuring a key person
Taking out term life insurance on a person who holds a key position increases the financial security of a business. The life insurance benefit paid following the death of a key employee therefore covers the temporary revenue losses entailed while a replacement is being recruited and trained.
- Taking out collateral insurance
Banks or creditors may require you to take out collateral insurance to secure the repayment of a loan or line of credit in the event that one of the owners dies.
- Transferring the family business to the next generation
Term life insurance provides the necessary funds to cover the latent tax bill that comes when a family business is transferred to the children after the owner dies.
This information is presented for information purposes only and should not be considered to be legal or financial advice. For further information, contact a legal or financial advisor.