Taking Care of Business: Insurance Needs of Business Owners

Continuing Education for Financial Service Professionals

Taking Care of Business: Insurance Needs of Business Owners

Taking Care of Business: Insurance Needs of Business Owners Copyright Š 2016 CLIFE Inc. All rights reserved. Any reproduction of parts or all of this course and its contents by any means electronic or mechanical is prohibited.

The information in this book is provided for educational purposes only; it should not be construed or interpreted as providing advice. Agents and advisors should always seek guidance from their principals and compliance experts in regards to informing themselves and others about details of the products they sell and other considerations of their business.

We welcome all feedback and suggestions for additions to the book. Please send your comments to info@clifece.ca.

CLIFE INC. 1595 Sixteenth Avenue Suite 301 Richmond Hill, ON L4B 3N9 www.clifece.ca

Taking Care of Business: Insurance Needs of Business Owners provides continuing education credits upon satisfactory completion of an online test. Please see the website for details or email info@clifece.ca.

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Table of Contents

Introduction: The Basics of Business

4

1. The Practicality of Business Prospecting

6

2. Business Forms and Structures

8

3. It’s Fundamental: The Buy-Sell Agreement

17

4. The Challenges of Business Ownership

21

5. Life and Death for Business Owners

27

6. A Living Buy-Out

35

7. The Risk of Key Employee Death and Disability

40

8. Time to Get Personal

45

9. Have Your Cake and Eat it Too --- For Now

58

10. Disability of an Owner

64

11. Wrap Up Your Understanding

77

12. For Love or Money

81

APPENDIX A: A WINNING EXIT STRATEGY: THE TOP TEN TIPS

85

APPENDIX B: SHAREHOLDER AGREEMENTS: A CHECKLIST FOR DISCUSSION PURPOSES

97

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The Basics of Business 

Look around your neighbourhood at its small businesses: they are the retail outlets, restaurants, service industries, garden centres, convenience stores, re-sellers, dental offices, professional practices, and manufacturers of every kind of widget, software, and product you can think of.

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Small businesses comprised 98.2% of employer businesses in Canada according to the most recent statistics from Industry Canada. That percentage represents over 1 million employer businesses: o Approximately 570,000 employer businesses are located in Ontario and Quebec; o Approximately 360,000 employer businesses are located in BC, Alberta, Saskatchewan and Manitoba; o The balance are split among the other provinces and territories.

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Small businesses are those with 5-99 employees. Other classifications by size include: o A micro-business, which has 1-4 employees; o A medium-size business, which has 100-499 employees; o A large business, which has 500 or more employees.

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Almost half of Canada’s total workforce is employed in a small business.

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And, according to a poll taken by TD Bank, only about 30% of small business owners have a succession plan for their business. This translates into approximately 700,000 business owners without a plan in place. As TD’s survey found:

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“many of those who do have a succession plan say they want to eventually pass their business on to their children, but only half have actually discussed this with them.”  What does this mean for you, the financial advisor? The number one conclusion we can draw is that you are missing a great opportunity if you have not prospected your local business market. They have a need and you have a solution.  Consider the products you can provide: 

Life insurance products for owners and partners to enable business succession and manage risk;

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Group life and health insurance products that can help the small business owner attract and retain top talent;

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Group retirement savings products for owners and employees.

 Further, you can advise on the strategy of transferring the value of a business owner’s life policy, while simultaneously being able to provide investment products that can convert policy value into income.  Take a look at Appendix A, A Winning Exit Strategy, The Top Ten Tips

by Phil Thompson, business lawyer and corporate counsel, as an excellent overview of the importance of business exit planning.  The course will review insurance products and the transfer strategy in order to equip you with a tool kit of knowledge you can use to prospect, sell, and service the small business market. You will learn to be the better business insurance advisor.

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