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Key Person Disruptions to your Business
Business owners, key executives, and important employees invest significant time and effort in acquiring the knowledge, experience, skills, reputation, and relationships that make them invaluable to the business. However, if one of these key individuals were to pass away, become disabled, or fall critically ill, the business would lose a crucial member of its team, leading to severe financial consequences.
During the disruption that follows the death, disability, or critical illness of a key player several things can happen within a business:
Unfortunately, the process of finding a Key Person replacement after losses such as death, disability, or critical illness, can cause business delays, further disruptions, and reduced efficiency, ultimately weakening the financial stability of the company. However, if the business has implemented a well-thought-out Key Person Insurance Plan prior to experiencing such a loss, the impact of this situation can be significantly reduced.
Introducing Corporate-Owned Life Insurance, a powerful option for businesses to protect their key personnel. In the unfortunate event of the death of a key person, the business receives a tax-free death benefit, providing essential financial stability during difficult times. An additional advantage for private companies is that the life insurance proceeds can be paid out as tax-free dividends to owners after the business has regained stability.
While premiums for Key Man coverage are not deductible expenditures for the corporation, the cash benefits received are non-taxable, offering a valuable financial advantage.
Should the corporation find that it no longer requires the Life Insurance policy for corporate protection, it has the option to transfer ownership to the insured employee or shareholder. However, it’s important to note that such a transfer would be considered an income tax disposition, necessitating a thorough review of the relevant rules outlined in the Income Tax Act to ensure compliance.
Introducing Corporate Critical Illness insurance, a valuable option designed to protect key people within your company. Under this plan, the company owns the policy and receives the proceeds in case of a critical illness event. The funds received can be used for the same purposes as Life Insurance proceeds.
Premiums for corporate-owned Critical Illness insurance are non-deductible for the corporation. However, the good news is that cash benefits and return of premium benefits are non-taxable to the corporation. If the corporation decides to provide the cash benefit or a portion of it to an employee or shareholder, there are different tax considerations depending on the purpose of the payment, including as an employee benefit, shareholder benefit, or dividend.
In the event that the corporation no longer requires the Critical Illness insurance policy for corporate protection, it can transfer the ownership to the insured employee or shareholder without incurring any tax consequences. Nonetheless, the employee or shareholder must include in their income the amount by which the fair market value of the policy exceeds the amount paid for it.
It’s important to note that the amount included in the employee or shareholder’s income would be deductible to the corporation only if it is provided as an employee benefit.
Introducing Key Person Disability insurance, a crucial safeguard available for your key personnel. Under this plan, the company owns the policy and receives the proceeds if a disability event occurs. These funds can be utilized for the same purposes as those from life insurance plans.
It’s important to note that while disability insurance proceeds share similarities with life insurance proceeds, they cannot be paid out as tax-free dividends to business owners, nor can they be received tax-free by disabled employees.
Regarding the premiums for the corporate-owned Disability Insurance, meant for Key Man coverage, it’s essential to understand that they are non-deductible expenditures for the corporation. However, the positive aspect is that cash benefits and return of premium benefits are non-taxable to the corporation.
In the event that the corporation no longer requires the Disability insurance policy for corporate protection, it has the option to transfer ownership to the insured employee or shareholder without incurring any tax consequences to the corporation. Nonetheless, in this case, the responsibility for paying the premiums would shift to the individual employee or shareholder.
The Solution to Your Business Disruptions
Fortunately, the possibility of the death, disability or critical illness of a key person is a contingency or risk that can be insured!
Don’t take it on alone - trust Health Risk Services experts to recommend, implement, and manage your various types of coverage.
Feeling like your credit is getting caught up? Liberate your assets with key person insurance
Insurance doesn’t have to be complicated - streamline payments by working with Health Risk
Nothing shows confidence like covering your finances, investments, and assets through the right insurance
Never get caught off guard and ensure that you’re secured against creditors.
No need to feel pressured to implement all coverage at once - with the right plan, you can adopt reasonable timelines to implement the right coverage as it suits your timelines.
A key person in your company or organization plays a vitally crucial role in the success of your operations. For example, you may employ a controller, chef, engineer, architect, or other type of key responsibility or role. But have you considered the potential impact on your company if you were suddenly absent due to a critical illness or premature death? Without your expertise, your business could face substantial financial losses and a decline in customer trust. This is where Health Risk’s key person insurance comes in. Our personal health insurance and corporate business insurance solutions provide peace of mind, allowing you to focus on recovery knowing that your financial stability is protected.
Our experienced consultants can guide you through the process of selecting and implementing the right key person insurance policy for your business. Schedule a consultation with Health Risk today and protect your business from unforeseen circumstances.
The main purpose of key person insurance is to protect an organization again financial loss and burden in the event that a key employee is disabled, is diagnosed with a critical medical condition, or dies. If the company decides to use the funds for the employee as opposed to the company, the proceeds can also aid and support the employee during recovery.
There are 3 main types of Key Person Insurance Coverage – Life Insurance, Disability Insurance and Critical Illness Insurance. Please note that each of these products can be designed to meet the specific needs of each unique organization.
No. Key Person insurance can be purchased to protect either the Company or the Employee or both.
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