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Jake Jun Qiao, Certified Financial Planner (CFP), Chartered Life Underwriter (CLU), Member of Million Dollar Round Table (MDRT). Please contact me for any financial planning inquires.


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Insurance Solutions for Small Business Owners

Life insurance can provide a cost-effective solution for many situations that could threaten a small business, such as the loss of an owner or a key employee. This section provides an overview of how life insurance can be used to help a small business plan for the unexpected, including:

Key Person Insurance
Business Loan Protection
Buy-sell Funding
We also look at how life insurance can provide small businesses with an opportunity for tax-advantaged investing and how it can be used as part of an enticing compensation package to attract the best employees.

Key Person Insurance

Business owners and other key executives spend considerable time and effort to acquire the knowledge, experience, judgment, reputation, relationships and skills that make them valuable to the business. When they die, the business loses a key member of the management team and this can have a severe financial impact.
Key person insurance provides assurance to a small business’s creditors and employees that the business will continue even if a key person dies. The life insurance proceeds provide immediate cash to cover the business’s working capital needs and to find and train a suitable replacement for the person who died.
The value of these benefits to the business should far exceed the cost of the life insurance.

Business Loan Protection 

It can be difficult to obtain adequate debt financing for a small business. Creditors will often require the business owner to personally guarantee a loan. The death of the business owner or another key executive may cause creditors to demand immediate repayment of outstanding business debts.
This can place a significant burden on the business and force the liquidation of key business assets at fire sale prices at a time when business results may already be severely impacted by the death.
In addition, if the business owner has personally guaranteed the debts incurred by the business, the owner or the owner’s estate may be liable for any outstanding debts that the business is unable to pay.
A life insurance policy purchased for business loan protection can help a business negotiate loans and repay business debts with tax-free life insurance proceeds when a business owner or another key executive dies. It can also prevent business owners or their estate from becoming personally liable for the business debts if the owner dies.

Buy-sell Funding 

A key component of an integrated financial plan is planning for business succession. The business interest often accounts for a substantial portion of the wealth the business owner has accumulated.
Ensuring that a plan is in place for the eventual transfer of the business interest will help the owner realize full value for the business interest and it will also help the business and the remaining owners survive the transition. This is particularly true if one of the owners dies prematurely.
Changes in ownership may create financial obligations for the remaining owners. Ownership changes can also have income tax implications for the withdrawing owner and the owners who remain.
An integral part of any succession plan is to ensure that financing is in place to fund the purchase and sale of the business interest if an owner dies. The succession plan should also provide the business owner with sufficient liquidity to fund the related income taxes and, where possible, take advantage of any tax deferral or tax minimization strategies that may be available.
For closely held corporations or partnerships, one of the most important tools for implementing a business succession plan is the shareholders’ agreement or partnership agreement. Once the business succession plan is developed, an agreement can be drafted to reflect the needs and wishes of the various parties.
Simply dial 416-835-8805 for details.


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