“Insurance can be one strategy to manage your risk,” says chartered accountant Vic Skot, principal, Benefit Partners Inc. in Barrie, Ont. “It can give the business owner and the corporation ways to manage and mitigate their risks that are both tax and cost effective.”
Life insurance is important, whether you are a sole owner or have a business partner. “If a sole owner dies, life insurance can help the business continue and/or liquidate in an orderly manner,” says Skot. “If you have a partner and one of you dies, insurance can provide the cash the surviving partner needs to acquire the shares of the business and keep it running.”
If you become ill or have an accident, disability insurance can protect your income stream while you are unable to work. “A subset of disability insurance is critical illness insurance,” says Skot. “It can provide the cash you might need to seek treatment to restore your health without having to tap into personal savings.”
Be sure to insure your property, inventory and equipment against such risks as fire and theft. “You need insurance to protect you from business interruption and employee dishonesty,” says chartered accountant Eric Walker, a partner with Cookson Walker LLP in Toronto. “You can customize your coverage to the size and nature of your business.”
Liability insurance is also mandatory. “Accidents on your property may injure your staff or others,” says Walker. “Many owner-operators don’t realize that court settlements for some injuries can run up to $10 million. Talk to your insurance broker about having enough liability insurance to cover the worst-case scenario.”
Most small business owners provide group insurance benefits to their employees, which may include life, accidental death or dismemberment, extended health, dental, long-term disability and/or critical illness insurance.
“For key employees, you may want to provide additional disability or critical illness insurance because you want to get these key individuals back to work quickly or because you need to immediately hire someone to replace them if they cannot return,” says Skot. “Banks often require key person coverage so that their loans to a business are well protected and will be paid back if something happens to the business’s key person.”
Talk to your CA about your insurance needs. “Your CA can help determine how much coverage you should have for your inventory, property and equipment by advising your insurance broker on their value,” says Walker.
Adds Skot: “There are many different insurance products available and it can be very difficult for a layperson to determine what is necessary versus what is marketing. Your CA can help assess your risk, analyze the options and identify the right solution for you.”
This article was written by the Institute of Chartered Accountants of Ontario.