It is absolutely imperative that effective planning must take place for any business to survive the owner’s or another key executive’s death. Unfortunately, it can be extremely difficult to obtain adequate debt financing for a business since creditors will often require the business owner to personally guarantee a loan.

The death of the business owner or key executive may cause creditors to demand immediate repayment of outstanding business debts. The significant burden that this situation places on the business can 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. To make matters worse, 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! Similar situations of debt can occur if the owner or key executive are affected by either a disability or a critical illness.

SOLUTION: The business purchases Insurance policies on the life of the business owner or key executives.  Proceeds from the policies are tax-free to the company and may be used to pay down the existing debts. Life insurance, disability insurance and critical illness insurance policies all play a necessary part in protecting the company’ s interests and minimizing financial risks. The creditors interests are protected removing any personal liability from heirs and allowing the business to continue deft free!

Health Risk Services Inc. will almost always recommend programs for this type of protection that will be extremely “cost effective” by providing pure insurance for the necessary terms of the loans. Term periods most frequently purchased for business loan protection are:

  1. Annual Renewable Term (rates are guaranteed for 1 year periods only)
  2. Term 10 (rates are guaranteed for 10 years and then increase to the next premium level for the following 10 years)
  3. Term 20 (rates are guaranteed for 20 years and then increase to the next premium level for the following 20 years)

Please note that generally, life insurance premiums paid for business loan protection are not deductible for tax purposes. However, if a life insurance policy has been requested by a restricted financial institution who is requiring the policy to be collaterally assigned to them, a portion of the premiums may be deducted.    

Health Risk Services Inc. always recommends that your accountant play a role in the establishment of appropriate Insurance programs in order to determine the proper tax implications for your business or company.

DISCLAIMER: Please be advised that the information on this web site is intended to present a broad variety of general information as simply and accurately for your knowledge as we possibly can.  In no event does this information form part of or apply as a legal document.  Therefore, please note that rules, conditions and industry practices discussed may be changed over time.  Please consult Health Risk Services Inc. with specific questions.

E & O Insurance applies