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Buy & Sell Planning for Businesses

Buy-Sell Life Insurance

Planning for the loss of a business owner or partner is crucial to ensuring the continuity of your business and protecting the financial security of your family and the families of each partner or co-owner.

To protect your business, your loved ones and your co-owners or partners, you can implement what is known as a buy sell agreement, which specifies what will happen to the interests of a deceased owner, partner or shareholder. 

Buy sell agreement helps preserves control and value of a business at the death of one of the owners/partners.

These agreements provide that the estate of the deceased owner will be paid a fair value for his/her interest and that the surviving owners will maintain control and ownership of the business. Life Insurance on the owners can be a source of money to fund this agreements.

The structure of the buyout and  Life insurance funding should be tailored to the objectives of the business owners.

There are three main methods to fund these types of agreements:

Criss-Cross Method

Each shareholder purchases a life insurance policy on the life of the other shareholder(s) and names himself or herself as beneficiary. Subsequently, the shareholders and company complete a Buy/Sell Agreement that requires the surviving shareholder(s) to purchase the shares of the deceased shareholder, usually at fair market value.

Upon death of a shareholder, the surviving shareholder(s) uses the insurance proceeds paid from the deceased’s life insurance policy to purchase the shares from the deceased shareholder’s estate.

Promissory Note Method

With this method, the operating company purchases a life insurance policy on the life of each shareholder. The company is named as the beneficiary of the policies and a Buy/Sell Agreement is put in place requiring the surviving shareholder(s) to purchase the shares of the deceased shareholder at fair market value. Upon the death of one of the shareholders, the company receives the insurance benefit and pays the proceeds to the surviving shareholder(s) as a capital dividend, allowing them to honor the promissory note.

Corporate Redemption Method

The operating company purchases a life insurance policy on the life of each shareholder, and the company is named the beneficiary of each of the policies. This method requires the company to purchase and cancel (or redeem) the shares of the deceased shareholder.

No matter what kind of business you are involved in—a corporation, a partnership, an LLC, or even a proprietorship you should strongly consider a buy-sell agreement.

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Why you should keep your New Year's resolution to get life insurance

We’re well into 2019 and New Year’s resolutions are probably being broken.

If getting life insurance was one of them, you might want to consider sticking to it – the longer you put it off, the more it could cost you down the road.

“Even if the need isn’t immediate, buying life insurance now is a smart decision: the younger and healthier you are, the less expensive life insurance will be,” Michael Aziz of Canadian Protection Plan told Yahoo Finance Canada.

Unless you’re a young person living a high-risk lifestyle filled with extreme sports, the premiums you pay will go up as you get older and health problems start to develop.

“This, however, doesn’t mean someone who isn’t perfectly healthy can’t or shouldn’t buy life insurance,” says Aziz.

Aziz says many first-time buyers overestimate the cost of life insurance. There’s also the complexity and array of options for purchase. Many providers offer online tools to get a quote and even apply for life insurance, and sitting down with an insurance advisor can you help you navigate through the lingo and help you decide what you need.

“This would include current and future financial obligations, such as mortgage payments, car loans, credit card, and other debt, education, income replacement,” says Aziz.

“Even if you can’t immediately afford to protect against all of this, having some protection is better than having none at all.”

There are two options to consider: term life and permanent life insurance. Term life covers a limited term for a set monthly premium. Terms generally range between 10 and 30 years.

“Term plans are often purchased by people who may be younger, are looking for the least expensive life insurance option, or want to protect a debt that has a similar term, such as a mortgage,” says Aziz

Premiums for term life insurance are cheaper compared to whole life or permanent life insurance.

“Permanent life insurance, which is generally more expensive than term, is designed to provide protection for a lifetime as long as the premiums are paid, and often provides a safe and tax-advantaged investment component that could help in retirement,” says Aziz.

Life insurance isn’t just for people with spouses and children who’ll be left in the lurch if you die.

“For those who have minimal family or other commitments, life insurance can be a way of leaving a legacy to grandchildren or community, through a charity or cause.”

Jessy Bains

Yahoo Finance Canada



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Financial Peace Today

Protect Your Family Today.

WHY FLEXCARE? FIND OUT NOW!

Flexcare is the most flexible Health and Dental solution for Canadians today. There are three Core Plans available, but clients can also customize their plan with extra options.

Flexcare is a terrific option for anyone without a group plan through work, but it's also affordable enough that you have it as a supplement to a group plan that might not provide enough coverage.
With more and more people switching jobs every few years, Flexcare will stay with you even between jobs or if a new employer doesn't have a strong health plan.
Core Plans
There are 3 Flexcare Core Plans. All three include coverage for vision care, emergency medical travel coverage (up to age 65), registered specialists and therapists, accidental dental, homecare and nursing, and more.
Here's a quick overview of the plans:

• ComboPlus^™: Coverage for both prescription drugs and dental expenses. Choose from three levels of coverage.
• DrugPlus^™: Coverage for prescription drugs, but not for dental, with two levels of coverage.
• DentalPlus^™: Coverage for dental care, but not prescription drugs, with two levels of coverage.

Once you decides on a plan and level of coverage, you can choose to boost your Core Plan coverage in certain areas, with Add-Ons:

• Vision
• Hospital
• Accidental Death and Dismemberment
• Catastrophic
• Travel (up to age 65)

Plus, if you have more specific needs, there are two Stand-Alones that don't require the purchase of a Core Plan: Hospital and Catastrophic.

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Generational Wealth

Most people think of life insurance as a costly, but sometimes necessary, expenditure. It’s rarely considered an investment. It’s unfortunate, because life insurance has some important attributes that can make it an effective financial tool. For starters, investments inside a permanent life insurance policy can grow on a tax-sheltered basis.

If you choose to insure the life of a child or grandchild, the cost of the insurance will be low, and the savings accumulated over the years can be used to help pay for an education, among other things.

Consider these numbers: If you were to contribute $216 each month to a participating whole life insurance policy on the life of your child, starting from their first year of life, you will have accumulated $70,023 (the cash value of the policy) in 20 years (assuming a current dividend scale of 6.35 per cent annually). These funds could be used to help pay the cost of an education. Alternatively, the funds could continue to accumulate in the policy and would be worth $135,994 at the age of 30 (this could make a helpful down payment on a home), $249,979 at 40 (perhaps to help start a business), and $990,023 at 65 (perhaps to help your child meet costs of retirement).

Sure, you always need to compare an investment like this to the alternatives – most notably a registered education savings plan (RESP). If you were to invest the same $216 each month in an RESP for 20 years, collect the maximum Canada Education Savings Grants (CESGs) along the way (equal to 20 per cent of RESP contributions to a maximum of $7,200 for each student), and chose investments that are of the same risk level as the whole life insurance policy (fixed income risk), you’d end up with about $95,150 in the RESP after 20 years (assumes an average rate of return of 4 per cent).

So, why not choose the RESP instead? Make no mistake, an RESP is an effective way to save for a child’s education. But the savings must be used for a single purpose: the education of the student (otherwise, taxes, penalties, and/or repayment of the CESGs could result).

The nuances

There are other nuances that could make the insurance policy a great option:

•  The figures above assume that there are no more insurance premiums paid after 20 years.
•  The funds in the insurance policy can be accessed in a number of ways: Receive the annual dividends on the policy as cash payments, borrow from the cash value of the policy, withdraw the investments in the accumulating fund, cancel the policy and withdraw the cash value, or borrow up to 90 per cent of the cash value from a bank. Each method has its own tax implications.
•  You can transfer ownership of the insurance policy to your child or grandchild on a tax-free basis once they’ve reached the age of 18. This will result in a transfer of the assets inside the policy, tax-free, and free of the attribution rules that might have otherwise applied to income earned while the kids were minors.
•  If you have the means, you might consider buying an annuity today to provide the cash annually to pay the insurance premiums for this strategy. This is truly a “set it and forget it” idea. The cost of the annuity could be less than the cost of paying the premiums annually out of other cash flow.
• Child can attend any educational program, anywhere in the world and at anytime without concern to any government rules on RESPs.
• Child can use cash value in policy  as a down payment for home purchase, purchase of first vehicle or plan wedding.
• Child does not need to purchase Life Insurance ever again.
• Huge cash value is readily available to supplement child's retirement benefits.
• An enormous Life Insurance amount plus remaining cash value passes on to heirs tax free on the death of child, thus creating generational wealth.
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Best Health & Dental Plan

Lock in 2017 rates! Apply by September 30, 2018.

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10 benefits of financial planning you may not realize

Financial Planning helps in improving risk management, improve portfolio ROI, uses metrics to manage money, among other benefits.

 

To do or not to do- this is the dilemma we all face in many a situation. While there is a yes and no as an answer to every dilemma, when it comes to financial planning, we would tend to lean towards the 'yes' more than the 'no'. In fact, in today's world, we would consider financial planning to rank pretty high in Maslow’s Hierarchy, and is as critical as the safety and social needs. Other than the fact that financial planning helps in bringing about discipline and achieving financial security, there are a few other reasons as well as to why you should do financial planning. Here are such top reasons:

1.Improves risk management: Taking adequate life cover and health cover is critical. When you do financial planning, you can determine the amount of cover you need with greater certainty. Thus you do not overpay for unnecessary insurance and also do not end up with a lower than necessary cover.

2.Improvement in portfolio return on investment (ROI): Financial planning takes into account various aspects like risk management, investment planning, goal planning, liquidity management and liability management. You are able to design an integrated investment plan that takes into account goals, available liquidity and risk appetite, thus helps in improving your portfolio ROI.

3.Use the metrics approach to manage your money: When you undertake financial planning, you can measure specific milestones on what you have achieved. There is a science involved in managing money and financial planning helps you do this with higher efficiency. 4.Identify good and not so good areas: Financial planning helps you bring order to your finances by identifying what is right and not right for you. For example, you may be low on insurance cover or holding investments which are performing poorly. Financial planning helps you identify this and take corrective measures.

5.Reduce your cost of personal finance: When you undertake financial planning, you can cut down on many personal finance costs. A good example is by doing away with expensive ULIP policies or any investment which carries high charges.

6.Discipline in managing money: Financial planning brings in discipline. Also, there are subtle behavioural changes when you undergo financial planning. For example, when you run a systematic investment plan (SIP), your expenses are automatically curtailed and this goes towards investments. Similarly, when you do financial planning, you become aware if your lifestyle expenses are above or below what you can afford. If it is the former, you can take necessary steps to cut back on unnecessary expenses.

7. Measure and improve asset allocation: Asset allocation is a critical element of managing your money. There has to be a fine balance struck between managing risk and returns, and the right assets need to be chosen for the same. Financial planning helps in selecting the right asset allocation mix depending on your risk and return preferences.

8. Future visibility: Planning is for the future. While we have often heard quotes saying that you should live the present and not dwell on the past or worry about the future, when it comes to money, considering the future becomes very important. Financial planning helps you get visibility for next 15-20 years. You are able to get comfort on retirement and planning your money during emergency situations. This helps in achieving peace of mind and also helps you plan in case there is a gap.

9. Estate distribution: Will writing and estate planning is an integral part of financial planning. When you do financial planning you can plan your estate distribution after your time, such that disputes are avoided.

10. Professional approach: There is a professional approach in putting together a plan and tracking it. You can implement best practices with the help of your financial advisor. All this brings about greater order to your money management practices.

Financial planning is not difficult. It is easy and it pays off handsome returns over the long term.

Get a comprehensive financial plan today. It is absolutely free.

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Source: Moneycontrol.com

 
 

6 Reasons Why You Should Invest in Life Insurance

For many people, their first experience with life insurance is when a friend or acquaintance gets an insurance license. In my case, a college friend, recently hired by a major insurance company, contacted me (along with all of his other friends) to buy a $10,000 policy underwritten by his company.
Unfortunately, however, this is how most people acquire life insurance – they don’t buy it, it is sold to them. But is life insurance something that you truly need, or is it merely an inconvenience shoved under your nose by a salesperson? While it may seem like the latter is true, there are actually many reasons why you should purchase life insurance.

 Reasons to Buy Life Insurance

As I grew older, got married, started a family, and began a business, I realized that life insurance was indispensable and fundamental to a sound financial plan. Over the years, life insurance has given me peace of mind knowing that money would be available to protect my family and estate in a number of ways, including:
1. To Pay Final Expenses
The cost of a funeral and burial can easily run into the tens of thousands of dollars, and I don’t want my wife, parents, or children to suffer financially in addition to emotionally at my death.
2. To Cover Children’s Expenses
Like most fathers, I want to be sure my kids are well taken care of and can afford a quality college education. For this reason, additional coverage is absolutely essential while my kids are still at home.
3. To Replace the Spouse’s IncomeIf my wife had passed away while the kids were young, I would’ve needed to replace her income, which was essential to our lifestyle. I also would’ve needed to hire help for domestic tasks we’d shared like cleaning the house, laundry, cooking, helping with schoolwork, and carting kids to doctor’s visits.
4. To Pay Off Debts
In addition to providing income to cover everyday living expenses, my family would need insurance to cover debts like the mortgage so they wouldn’t have to sell the house to stay solvent.
5. To Buy a Business Partner’s Shares
Since I’m involved in a business partnership, I need insurance on my partner’s life. The reason is so if he dies, I will have enough cash to buy his interest from his heirs and pay his share of the company’s obligations without having to sell the company itself. He has the same needs (due to the risk that I might die), and he simultaneously purchased insurance on my life.
6. To Pay Off Estate Taxes
Estate taxes can be steep, so having insurance in place to pay them is essential to avoid jeopardizing assets or funds built for retirement. Use of insurance for this purpose is most common in large estates, and uses permanent (rather than term) insurance to ensure that coverage remains until the end of life.

Final Word

Some people mistakenly believe that life insurance is a scam. This is due to the fact that the money for premiums is lost if death doesn’t occur during the coverage period (in the case of term insurance), or because many people live to a ripe old age and continue to pay their permanent insurance premiums. Such naysayers compare life insurance protection to gambling, and forgo the protection entirely.
Of course, there is no bet – you will die, but no one knows when. It could be today, tomorrow, or 50 years into the future, but it will happen eventually. Life insurance protects your heirs from the unknowable and helps them through an otherwise difficult time of loss.
Do you have life insurance? Why or why not?

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Micheal Lewis
MoneyCrashers

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Life Insurance - Insurable Interest Explained

Buying Life Insurance for Someone Else, What You Need to Know

People are most familiar with taking out a life insurance policy on themselves to financially provide for their family should anything happen. The benefit from your plan can go towards paying for final costs, covering education fees for your kids, or helping your surviving spouse stay financially stable. But is it possible to purchase life insurance on someone else?
The short answer is yes, you can buy life insurance on another person. The long answer is that even though it is possible there are certain criteria that must be met. Today, we’re taking a look at what you need to know about getting insurance for someone else.

The Importance of Insurable Interest

Life insurance serves the purpose of financially protecting your loved ones in the event you lose your life. The benefit your plan pays out to your chosen beneficiaries in order to help them carry on and protect their financial future without you. But if you want to purchase life insurance on another person, you must have insurable interest.
Insurable interest means that you would be financially hurt in the event the insured person dies. Simply put, you can’t just take out insurance on any random person you choose, it has to be someone who’s passing could hurt you financially.
For example, you can’t take out a policy on your unrelated elderly neighbour. The passing of a friendly neighbour will not have much of a negative financial impact than the passing of a close family member.

Life Insurance

Getting Consent

Consent is always required when taking out a life insurance policy on someone else. Getting permission is key to preventing the fraudulent act of policies being taken out without the insured knowing. But getting the potentially insured person’s permission is only the first step to beginning the process.
Insurance companies will often require the person you are looking to get insured to undergo a medical exam and take a detailed health questionnaire. If a plan doesn’t require medical exams or questionnaires the signature of the insured will often be required when issuing an insurance policy.
The one and only situation where consent and insurable interest are not required are when parents are taking out a life insurance policy on their minor children.

Who Can You Buy a Policy On?

The most common people individuals take out policies on is their spouse or partner. Both people in this instance can get a policy for themselves and make the other their beneficiary, but there is also obvious insurable interest in this situation. Either making each other a beneficiary or simply taking out a policy on each other are two equally effective ways of protecting your financial futures.
Elderly parents are another common group of people to take out a policy on. The adult children of these parents often do this in order to help cover eventual final expenses and settle any debts their parent may have had. Also, if these elderly parents often watch over their grandchildren a policy taken out on them could help cover the costs of daily child care.
Finally, business partners are another typical group of people that you may want to buy insurance for because of how valuable they may be to your company. Usually, people who decide to take out a policy on a business partner will have it equal their respective share of the company. Doing this will allow the surviving partner to buy out any heirs and keep the company moving forward under his or her control.
Key man insurance is a form of life insurance that businesses take out on an important employee, like a CEO, so if he or she passes away the benefit will help the company locate a suitable replacement. The benefit will give the company time to adjust to the loss of the person and make the next best move to help recover from any financial setbacks.

Can Policies be Taken Out Without the Insured Knowing?

This is most likely something people would see on a daytime murder mystery show, but the reality is it’s next to impossible for this situation to occur. Consent and insurable interest make it incredibly difficult for an individual to take a policy out on someone without them knowing. Also, the required medical exams that most plans and insurers put in place in this instance adds another level of security to fighting insurance fraud.

Life Insurance Explained

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