Do we have your attention? Let’s explore one of the most important types of insurance business owners need, critical illness insurance. When you’re a business owner, there are several financial planning strategies you can use to maximize your income and lower your taxes. Corporate-owned insurance policies are one of these key strategies.
Think about your day to day business operations. If you got seriously injured or sick and couldn’t run your business, who could do it? Here’s a better question, could you afford to keep your busines going if you became injured, suddenly lost your income and had to pay for unplanned medical expenses? This is exactly why critical illness insurance is a smart financial strategy for Canadian business owners.
What is critical illness insurance?
If you were diagnosed with a critical illness, government health plans (i.e. provincial health care such as OHIP) will cover some of your expenses – but not all of them. But it’s not a carte blanche for anything and everything you may need medically to regain your health. Critical illness insurance can provide additional coverage to help pay for your medical expenses, treatments and care.
If you have a sudden illness such as a heart attack, cancer diagnosis or stroke, the effects can vary and you will likely be away from your business for a period of time. A critical illness insurance policy will pay out a lumpsum of cash tax-free to help cover costs that aren’t covered by a government-provided health plan.
What is split dollar critical illness insurance?
Split dollar critical illness insurance is a corporate-owned insurance policy. The policy is purchased by the company for the employee (usually an owner or high-level executive or director). The company is the plan owner and pays the premiums, the employee is the insured person and the beneficiary.
One of the main advantages of a split dollar critical illness insurance policy is the Return of Premium rider. If there have been no claims filed after a predetermined number of years (i.e. 10, 15 or 20), you can receive the premiums (paid by the Corp) back tax-free. Working with an experienced financial advisor who can help set this up correctly is a key to ensuring you’re maximizing the benefits of your corporate-owned insurance policy.
Although life insurance premiums aren’t tax deductible for the company, the tax benefit is corporations usually have much lower tax rates than an individual person. Therefore, the tax payable on the cost of premiums will be much lower than if you as an individual owned and paid for the insurance policy.
As with all insurance policies the cost of coverage varies depending on the insured person’s personal demographics such as age, sex, smoking habits and medical history – just to name a few.
Who needs split dollar critical illness insurance?
Canadian business owners who want peace of mind, should invest in split dollar critical illness insurance. If you become sick, you don’t want to worry about getting better and running your business and question if your business can survive during your recovery period. Corporate-owned insurance takes away the stress of a financial burden during an unforeseen illness.
Think about how much a lumpsum of money could help you, your family and your business if you were diagnosed with a critical illness and couldn’t work or run your business. When you’re a business owner being safe is always better than being sorry because it’s not only your personal and financial life at risk, your partners, shareholders and employees also depend on you.
You may think purchasing insurance isn’t a great strategy because you have a high net worth and personal assets that could cover unexpected costs if you got seriously sick or injured. But do you have enough savings to pay for large unforeseen expenses AND run your business? A split dollar critical illness insurance policy helps ensure you can cover unforeseen medical expenses and if you don’t file any claims, you can receive the cost of premiums back tax-free from the corporation. It’s a win-win.
Purchasing a corporate-owned critical illness policy can help reduce some of the risks that come with unplanned medical emergencies. If you haven’t yet explored corporate-owned insurance policies for your business, let us help. Contact us and we can talk about your business and your insurance needs.
