Business & Policy
What is your business safety plan?
By Paul R. Vaillancourt CFP CLU CHS and CPCA
An accident can only take a second, yet it can have a huge financial impact.
What would happen to your business if you or one of your key employees was momentarily distracted around the farm equipment or slipped and was injured? What would happen if you, as the owner, couldn’t work for an indefinite period due to illness, such as a stroke? With the Canadian Agricultural Safety Week taking place in March, it is a good time to consider your insurance needs while you are implementing or updating your safety plan.
During your working life before age 65, it is estimated one-third of Canadians will become disabled for 90 days or longer and that a serious, life-threatening illness will affect one in three Canadians in their lifetime. Cancer, heart attack and stroke account for 85 per cent of critical illness claims paid out in 2009.
Let’s consider the following situation that you could be facing and review the options available to ensure you receive an income, your business can continue to operate and assets can remain in place, and to help your employees.
When a disability strikes, your potential needs as a business owner are twofold: you need an income and your business has an obligation to pay its bills. Personally owned disability insurance coverage could help you replace your lost income with a tax-free benefit in the event of a long-term injury or illness. Business-owned overhead expense disability insurance can help you continue to pay your employees, business loans and other operating expenses while you recover. Key person disability insurance will help you hire a replacement if your key employee becomes sick or injured or even dies.
Many Canadians will consider registered retirement savings plan (RRSP) as both their key to retirement and an emergency fund to deal with unexpected events such as a critical illness. How much of your RRSP are you prepared to cash out if you become critically ill? How much later are you prepared to retire than planned? Years of retirement savings could easily disappear in one year if a critical illness occurs. In addition to the loss of income, the average out-of-pocket costs for cancer are $287.41 per month and additional travel costs of $426.31. With advancements in medicine, more individuals are making a full recovery from cancer, stroke and heart attack or other critical illnesses, but it may not mean a full recovery of wealth. For example, if you need an additional $10,000 to cover these expenses, at a 35 per cent marginal tax rate, you would need to withdraw $15,385 from your RRSP. The amount would be $18,182 at a 45 per cent marginal tax rate.
Critical illness insurance covers you for expenses incurred for a covered illness, providing you with financial stability and allowing you to focus on your health and recovery. You receive a tax-free lump sum payment based on the plan coverage that you purchase (i.e., $100,000 as a result of stroke). You can use the benefits in any way you wish. So instead of depleting your retirement fund, you can use the benefits to help hire a replacement, to compensate your business for the loss of productivity or to reduce business debt. You could also use the benefits for treatment not covered by provincial health insurance.
How much will it cost?
The cost for insurance varies by plan, which is tailored to suit your personal circumstances. Below are premium examples assuming Canada Life protection for a non-smoker male, farm owner (2A occupation) and standard risk. This table is for illustration purposes only.
It is best to purchase this coverage before a health issue arises that may cause your insurance application to be declined or rated. The cost of not having adequate coverage could be potentially devastating to your family and your business.
Put a business safety plan in place today that can help protect your financial goals. Speak with your financial advisor to learn more about disability and critical illness insurance, their features and their benefits.
This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities. Paul Vaillancourt is solely responsible for its content. For more information on this topic or any other financial matter, please contact an Investors Group Consultant.
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