Ontario Auto Insurance Rate Increase in 2008 Q1

From Canadian Underwriter

Ontario auto insurance rates are on the rise, according to data posted by the Financial Services Commission of Ontario (FSCO), the regulator of the province's insurers.

Rate applications approved for 2008 Q1 averaged +1.05%, based on the entire market, FSCO noted in an online bulletin. Rate changes approved in 2004, 2005, 2006 and 2007 were -10.60%, -2.43%, -1.27% and +0.55%, respectively, for the entire market.

In 2008 Q1, for the 43.37% of the market that had rate changes approved, the average rate change was +2.42%, when weighted by market share.

Among the companies in Ontario with a market share of 1% or greater, here are the approved rate changes shown for each insurance company:

• ING Insurance Company of Canada Rate Change: +2.02% Market share 7.73%


• Pilot Insurance Company Rate Change: +3.02% Market share: 6.14%


• Economical Mutual Insurance Company Rate Change: +3.10% Market share 5.76%


• Co-operators General Insurance Company Rate Change: -0.73% Market share 4.65%


• Personal Insurance Company Rate Change: +6.04% Market share 3.32%


• Traders General Insurance Company of Canada Rate Change: +4.10% Market share 3.31%


• Nordic Insurance Company of Canada, Rate Change: +3.36% Market share 1.80%


• Farm Mutual Reinsurance Plan Inc. Rate Change: No change Market share 1.63%


• Scottish & York Insurance Company Limited Rate Change: +3.02% Market share 1.62%


• COSECO Insurance Company Rate Change: +2.90% Market share 1.31%


• York Fire & Casualty Insurance Company Rate Change: No change Market share 1.29%

The rate changes listed above represent the average rate change for each particular company. They do not necessarily reflect the impact of the rate change on individual consumers. The impact of a rate change on an individual consumer will vary depending on where the consumer lives, the type of car he or she is driving and other risk characteristics.

http://www.canadianunderwriter.com/

For an automobile insurance quote, visit http://www.blueskyfinancialgroup.com/ or

call us at 1-800-419-3723

New Crash Tests for Mid-Size Cars

IIHS: New crash tests of midsize cars: protection in side impacts improves, but most cars tested still afford marginal or poor protection in rear crashes



ARLINGTON, VA - Occupant protection in side impacts of midsize cars is improving as automakers introduce safer designs and add side airbags as standard equipment. The Insurance Institute for Highway Safety recently completed front, side, and rear tests of seven 2008 model midsize cars, both moderately priced and luxury: Chevrolet Malibu, Dodge Avenger, Infiniti G35, Kia Optima, Mitsubishi Galant, Nissan Altima, and Saturn Aura.





All earn the highest rating of good for occupant protection in frontal crashes. All but the Kia Optima earn the top rating of good for side crash protection (Malibu's rating applies to cars built after February 2008). Rear crash protection results vary more widely. Among the seats/head restraints evaluated, only those in the Optima earn a good rating.



"The side impact results represent a huge change from just four years ago," says Institute senior vice president David Zuby. "In 2004 we tested 10 midsize moderately priced cars, and all 10 were rated poor in their standard configurations without side airbags." In the 2004 tests, only the previous generations of the Honda Accord, Toyota Camry, and Chevrolet Malibu earned good ratings when tested with side airbags, which then were optional equipment.
"Side airbags were mostly optional in our first round of side impact tests of midsize cars," Zuby says. "A major change is that side airbags are standard in every one of the seven midsize cars we tested this time around. Auto manufacturers have been moving quickly to make side airbags standard, even on lower priced models."

Avenger and Optima improve: When the Institute tested the Avenger's predecessor, the Dodge Stratus, without its optional side airbags it earned a poor rating for protecting people in side crashes. The safety cage didn't hold up well, resulting in a lot of intrusion into the occupant compartment. The driver dummy's head was struck by the intruding barrier, and injury measures recorded on the dummy indicate that broken ribs and a fractured pelvis would be likely to occur in a real-world crash of similar severity.
Chrysler redesigned this car as an early 2008 model, renaming it the Avenger, which also is sold as the Chrysler Sebring. Front and rear head curtain airbags and front seat-mounted torso airbags now are standard.

The Avenger's performance in the side test is "dramatically improved compared with the Stratus," Zuby says. The new model kept intrusion into the occupant compartment to a minimum. The side curtain airbag protected the driver dummy's head from being struck by the barrier. Injury measures indicate the possibility of rib fractures, but other injury measures are low. The Avenger is rated good for side impact protection, and it would win a Top Safety Pick award if its seat/head restraints earned a good rating instead of acceptable.

The 2004 Optima (vehicle tested was the Optima's twin, Hyundai Sonata) is rated poor for occupant protection in side impacts, even with its standard combination side airbags designed to protect front-seat occupants' heads and chests. Measures recorded on the driver dummy indicate that rib fractures and internal organ injuries would be likely to occur in a real-world crash of similar severity. Plus the rear passenger dummy's head was struck by the window-sill and the pillar behind the rear door.

The Optima was redesigned during the 2006 model year. The performance of the new model is much improved. Driver injury measures indicate the possibility of a fractured pelvis, but all other measures are low. Kia also changed the side airbag configuration to curtain style that protects the heads of people in both front and rear seats. The new test results apply to Optimas built after June 2006.

Rear crashworthiness ratings aren't as impressive: The seat/head restraints in the Optima are the only ones the Institute tested this time around that earn the top rating of good for occupant protection in rear crashes. Five of the seat/head restraint combinations earn marginal or poor ratings.

When a vehicle is struck in the rear and driven forward, its seats accelerate occupants' torsos forward. Unsupported, an occupant's head will lag behind the forward torso movement, and the differential motion causes the neck to bend and stretch. The higher the torso acceleration, the more sudden the motion, the higher the forces on the neck, and the more likely a neck injury is to occur.

The key to reducing whiplash injury risk is to keep the head and torso moving together. To accomplish this, the geometry of a head restraint has to be adequate - high enough to be near the back of the head. Then the seat structure and stiffness characteristics must be designed to work in concert with the head restraint to support an occupant's neck and head, accelerating them with the torso as the vehicle is pushed forward.

"In stop and go commuter traffic, you're more likely to get in a rear-end collision than any other kind of crash," Zuby says. "It's not a major feat of engineering to design seats and head restraints that afford good protection in these common crashes."
Rear-end collisions are frequent, and neck injuries are the most common injuries reported in auto crashes. They account for 2 million insurance claims each year, costing at least $8.5 billion. Such injuries aren't life-threatening, but they can be painful and debilitating.

How vehicles are evaluated: The Institute's frontal crashworthiness evaluations are based on results of 40 mph frontal offset crash tests. Each vehicle's overall evaluation is based on measurements of intrusion into the occupant compartment, injury measures recorded on a Hybrid III dummy in the driver seat, and analysis of slow-motion film to assess how well the restraint system controlled dummy movement during the test.

Side evaluations are based on performance in a crash test in which the side of a vehicle is struck by a barrier moving at 31 mph. The barrier represents the front end of a pickup or SUV. Ratings reflect injury measures recorded on two instrumented SID-IIs dummies, assessment of head protection countermeasures, and the vehicle's structural performance during the impact. Injury measures obtained from the two dummies, one in the driver seat and the other in the back seat behind the driver, are used to determine the likelihood that a driver and/or passenger in a similar real-world crash would sustain serious injury to various parts of the body. The movements and contacts of the dummies' heads during the test also are evaluated. Structural performance is based on measurements indicating the amount of B-pillar intrusion into the occupant compartment.

Rear crash protection is rated according to a two-step procedure. Starting points for the ratings are measurements of head restraint geometry -the height of a restraint and its horizontal distance behind the back of the head of an average-size man. Seats with good or acceptable restraint geometry are tested dynamically using a dummy that measures forces on the neck. This test simulates a collision in which a stationary vehicle is struck in the rear at 20 mph. Seats without good or acceptable geometry are rated poor overall because they can't be positioned to protect many people.

About The Insurance Institute for Highway Safety (IIHS)
The Insurance Institute for Highway Safety is an independent, nonprofit, scientific and educational organization dedicated to reducing the losses " deaths, injuries, and property damage " from crashes on the nation's highways. The Highway Loss Data Institute's mission is to compute and publish insurance loss results by make and model. For more information, visit
http://www.iihs.org.


for a quote on automobile insurance, visit www.myinsurancequote.ca
or call us 1-800-419-3723

Thank you for visiting our Blog. We will return with new articles on May 9th

Seat Belt Safety

One person, one seat belt

Effective December 1, 2006, in Ontario, every person travelling in a motor vehicle must wear a seat belt or use a child safety seat. The penalty for seat belt infractions is a fine between $60 and $500. Convicted offenders will receive two demerit points.
Drivers are responsible for ensuring that passengers under 16 years of age are using the seat belt or an appropriate child car seat proper

Police officers may request that passengers who appear to be at least 16 years of age provide their name, address and date of birth. These passengers may face a fine for not using or wearing a seat belt properly.
There are limited exemptions from wearing seat belts.

Fact...Wearing your seat belt properly will dramatically increase your chance of surviving a motor vehicle collision.
For every one per cent increase in seat belt usage, five lives in Canada are saved (Transport Canada).
Since seat belts were made mandatory, the number of people killed and injured in collisions in Ontario has steadily dropped.

Stay Safe and Secure for everyone's sake

Proper Use of Seat Belts

• A properly worn seat belt greatly increases your chances of surviving a motor vehicle collision.
• No doubling up - only one person to a seat belt.
• A typical seat belt assembly consists of a lap and shoulder belt. The shoulder belt should be worn closely against the body and over the shoulder and across the chest, never under the arm. The lap belt should be firm against the body and low across the hips.
• Air bags do not take the place of a seat belt. When air bags activate during a motor vehicle collision, they reduce the forward movement of the upper torso and minimize impact. They do not prevent drivers and passengers from being thrown from the car.
  

When a seat belt is worn correctly, it will apply most of the collision or stopping forces across the chest and pelvis, which are better able to withstand collision forces. A seat belt should not be worn twisted, as the full width of the belt is required to spread motor vehicle collision forces across the body.

Wearing a seat belt loosely or placing the shoulder belt under the arm or behind your back instead of across the chest, could, in the case of a collision or sudden stop, result in an injury-producing impact with the vehicle interior, or ejection from the vehicle. Wearing a lap belt across the stomach, instead of low across the hips, allows collision forces to be applied to the soft tissue of the body, increasing the chance of injury.
Pregnant women must wear seat belts - wearing the lap and shoulder belt and sitting as upright as possible. The lap belt should be worn low so it pulls downward on the pelvic bones and not directly against the abdomen.

Seat Belts and the Law

• All Ontario motor vehicle drivers and passengers must wear a seat belt in a properly adjusted and securely fastened manner.
• A driver can be charged and face a fine of $90.00 and two demerit points (plus a $20 victim surcharge) for seat belt infractions. Demerit points remain on a driving record for two years from the date of the offence.
• All motor vehicle drivers are responsible for ensuring that all children under 16 years of age are properly secured in a seat belt or an appropriate child car seat or booster seat.
  

Using a seat belt is the single most effective way to reduce the chance of injury or death in a motor vehicle collision. Over 92 percent of Ontarians wear their seat belt regularly. However, those 8 percent who don't represent over 600,000 people. It's easy to see the difference wearing a seat belt makes -for every one percent increase in seat belt use five lives are saved.

At all times, limit the number of occupants in your vehicle to the number of seat belts. Unbelted occupants can become projectiles during a collision and can seriously injure themselves, other passengers or the driver.

You must wear a seat belt whenever you travel in a motor vehicle, including a taxi. It is the taxi driver's responsibility to ensure that the seat belt is available and in good working order. Taxi drivers are responsible for ensuring that passengers under the age of 16 are wearing seat belts. The law does not require the taxi driver to provide a child car seat. When travelling in a taxi with a child, you may provide your own child car seat or booster seat.

For more information on Ontario's seat belt laws, see section 106 and regulation 613 of the Highway Traffic Act.

Children and Seat Belts

• The motor vehicle driver is responsible for ensuring that all children under 16 years of age are properly secured in a motor vehicle.
• Babies, toddlers, pre-schoolers and primary-school aged children must travel in the appropriate child car seats or booster seats.
  
• Children under 13 years of age are safest in the back seat of a motor vehicle, away from any potential point of impact.

• To effectively use a seat belt, a child must be able to sit with legs bent comfortably over the vehicle seat and with his or her back fully against the back of the vehicle seat. The lap belt must cross over the hips (not the stomach) and the shoulder belt must cross between the shoulder and the neck.

Motor vehicle drivers who fail to ensure that children in their vehicle are properly secured in a seat belt or child car seat could be charged and face a fine of $90.00 and two demerit points (plus a $20.00 victim surcharge), and risk injury to the child.

Passengers who are 16 years of age and older are responsible for buckling themselves up. If stopped by a police officer, passengers aged 16 and older must provide their name, address and date of birth to the officer. They can face a fine of $90 for not using or wearing their seat belt properly.

Child passengers who sit in the back seat, particularly in the middle of the back seat, are less likely to be injured during a motor vehicle collision. An exception is if the back seat is the auxiliary seat of a light-duty truck, then the child should sit in the front, but only if there is not an active airbag.

Children who have outgrown their child car seat have not developed the physical characteristics and size for adult seat belts to be fully effective. They must use a booster seat.
Booster seats are required for children under the age of eight, weighing 18 kg or more but less than 36 kg (40-80 lbs) and who stand less than 145 cm (4 feet 9 inches) tall.

A child can start using a seatbelt alone once any one of the following criteria is met:

1. Child turns eight years old
2. Child weighs 36 kg (80 lb.)
3. Child is 145 cm (4 feet 9 inches) tall

Infants under 9 kg (20 lb.) must be secured in a rear-facing infant car seat. Toddlers 9-18 kg (20 - 40 lb.) who are about a year old and can also pull themselves unassisted to a standing position should travel in a forward-facing child car seat secured by both a seat belt (or LATCH/UAS system) and a tether strap, attached to an anchor bolted into the vehicle's frame.

Your local public health unit will be able to provide you with information on child passenger safety as well as inform you about upcoming child car seat inspection clinics. Public health units have trained personnel who can provide workshops or information about child car seats, or hold child car seat inspection clinics.

Seat Belt Exemptions

Seatbelt exemptions continue to include:

1. Driving a motor vehicle in reverse
2. People with medical certificates saying that they are unable to wear a seatbelt
3. People engaged in work that requires them to exit from and re-enter the vehicle at frequent intervals, as long as they are traveling less than 40 km/h
4. Police or peace officers while transporting a person in custody
5. Person in police custody while being transported
6. Employees and agents of Canada Post engaged in rural mail delivery
7. Ambulance attendants and any other persons being transported in the patient's compartment of an ambulance
8. Firefighters in the rear of a fire department vehicle while engaged in work that makes it impractical to wear a seatbelt
9. Taxi cab drivers while transporting a passenger for hire. When travelling alone in the vehicle, taxi cab drivers must wear a seatbelt.

For vehicles that were not manufactured with seatbelts, the following exemptions apply:

• Buses (including school buses)
• Other large commercial vehicles (over 4,536 kg), which do not require seatbelts to be installed in rear seating positions at the time of manufacture
• Historic vehicles that were not manufactured with seatbelts
  
  

For more information contact the Ministry of Transportation at 1-800-268-4686 (TTY: 1-866-471-8929).

http://www.mto.gov.on.ca/

Flow-Through Investments

To encourage investment in more speculative, resource-based ventures, the Federal and Provincial Governments of Canada have created Flow-Through Investments

Who should invest in Flow-Through Shares?

Typically, Investors in the top marginal tax bracket would receive the most benefit from a flow-through investment. However, most investors, regardless of their income level, would likely receive some benefit from investing in flow-through shares.

Investors should also be comfortable with risk and volatility in the value of their investment. Due to the highly speculative nature of resource exploration, the value of the investment could vary widely.

What am I investing in?

An investment in a Flow-Through Share is required to be used for the exploration and / or development towards production and must be kept separate from general operating funds. After the tax deductions are made, capital gains are possible. Some shares even allow for conversion into other investments.

What are the tax advantages?

If you were to invest $10,000 in flow through shares, providing that they are eligible for the tax breaks, you can claim the full $10,000 on your tax return. If you are in the 40% tax bracket, that would equate to a $4,000 tax return for that year.

What are the risks/disadvantages?

If you are experienced with the Canadian mining/oil sector, you will know that this market can be fairly volatile. Also, when you purchase flow through shares, you typically have to hold onto them for 18-24 months before you can sell them.

What is a flow-through limited partnership?

A flow-through limited partnership is a portfolio of flow-through shares of Canadian resource companies that combines unique tax advantages with the prospect for capital appreciation.
Early-stage oil and gas, or mining exploration companies receive special tax deductions that can be transferred, in the form of flow-through shares, to investors. Flow-through limited partnerships purchase flow-through shares and investors in the limited partnerships receive a 100 per cent tax deduction for the amount invested. Typically, after a period of 18 to 24 months, assets of the limited partnership roll over tax-deferred to units of a resource-based mutual fund

Who can benefit from flow-through limited partnerships?

• Individuals seeking an investment tax shelter to reduce current taxable income
• Investors who wish to reduce risk through a diversified portfolio, instead of investing in flow- through shares of a single company
• Investors who wish to defer tax and convert fully taxable income in the current year into capital gains taxed at a later date
• Individuals looking to invest with a proven, disciplined investment management team.

For more information on this topic or other Financial Products, contact us via email, at 1-800-419-3723 or visit our website

Life Insurance Solutions for Small Business Owners ---- Part III

Life Insurance Solutions for Small Business Owners

- Part III

from Manulife

Executive Compensation

Small business owners often offer supplementary benefit
packages to attract executives. These packages offer a
wide assortment of benefits, which may include life
insurance protection.

The life insurance protection ensures that if the executive
dies, his or her dependants receive money that can be used
to cover funeral expenses, education costs, reduce debt and provide future income.

The policy may be purchased by the business/employer, or it may be owned and funded jointly by the employer and the executive. The executive’s dependants would be named as
the beneficiary of all or a portion of the policy.

The employer paid portion of the life insurance premium must be reported as a taxable benefit to the executive. It is important that the amount reported represents a reasonable cost for the benefit received.

Wealth Creation

Often a business’s profits or surplus cash are invested in GICs or taxable investments. These taxable investments may not be the business’s best investment option. If the business already needs an exempt life insurance policy for key-person insurance, business loan protection or some other business insurance need, the policy could also be used as a vehicle for investing the company’s excess profits.

An exempt, permanent life insurance policy allows for taxdeferred growth of the cash value and tax-free receipt of the proceeds at death. The cash value growth within an exempt policy is not subject to annual accrual taxation and is only subject to tax if there is a disposition of the policy.

Significant cash value can accumulate on a tax-deferred basis if the business deposits the maximum amount permitted by the Income Tax Act into the exempt policy. The deposits can remain within the policy on a tax-sheltered basis and pay for the cost of insurance and expenses in future years.

If the corporation or shareholder needs access to the cash at some future date, the policy’s cash surrender value can be accessed through withdrawals or a collateral loan secured against the insurance policy. Policy withdrawals may trigger some income tax at the time of the withdrawal. Advances to the corporation received as a collateral loan will be tax free and if the proceeds are used to earn income from a business or property, and the other requirements of 20(1)(c) of the Act are met, the interest expense may be deductible for tax purposes.

Conclusion

Life insurance can be used to protect the interests of a small business owner and to ensure the continued operation of the business itself. It can provide security for creditors during a period of change and assurance that the business will continue even if a key person departs. It can also be
instrumental in attracting and retaining excellent employees, who will work to assure the continued success of the company.

As you work to develop an integrated financial plan, you will want to consider life insurance as a cost-effective solution for your current situation and as a means of achieving the stability that is so essential to your future success.

For information on how Manulife’s products can help meet your business needs, visit
www.manulife.ca/insurance.

for information on insurance and financial products, call us at 1-800-419-3723 or visit us at http://www.blueskyfinancialgroup.com/

Life Insurance Solutions for Small Business Owners

Life Insurance Solutions for Small Business Owners - Part II

from Manulife

Buy-sell Funding

A key component of an integrated financial plan is planning for business succession. The business interest often accounts for a substantial portion of the wealth the business owner has accumulated.

Ensuring that a plan is in place for the eventual transfer of the business interest will help the owner realize full value for the business interest and it will also help the business and the remaining owners survive the transition. This is particularly true if one of the owners dies prematurely. Changes in ownership may create financial obligations for the remaining owners. Ownership changes can also have income tax implications for the withdrawing owner and the
owners who remain.

An integral part of any succession plan is to ensure that financing is in place to fund the purchase and sale of the business interest if an owner dies. The succession plan should also provide the business owner with sufficient liquidity to fund the related income taxes and, where possible, take advantage of any tax deferral or tax minimization strategies that may be available.

For closely held corporations or partnerships, one of the most important tools for implementing a business succession plan is the shareholders’ agreement or partnership agreement. Once the business succession plan is developed, an agreement can be drafted to reflect the needs and wishes of the various parties. Life insurance is generally an efficient way to fund the obligation that results from a buy/sell agreement when a shareholder or partner dies. There are numerous possible ways to structure a buyout on death and life insurance funding plays an important role in ensuring the buyout occurs.

In considering the various methods for structuring a buy/sell agreement, you need to keep in mind that there is no "right way" to proceed. Each method has its own pros and cons and must be considered in light of the circumstances of a given situation.

An important consideration is whether to fund the buy/sell arrangement with ‘corporate owned’ or ‘personally owned’ life insurance. Ensuring that the ownership is properly arranged from the onset will avoid a transfer of ownership in the future, which would result in a disposition of the
policy and could possibly trigger a tax liability.

Funding Capital Gains Tax on a Business at Death

Life insurance can also be an effective way to fund the tax liability that arises at death.
An individual who owns shares in a corporation, a partnership interest, or business assets (as in the case of a sole proprietorship) will be deemed to have disposed of these properties at death. As a result, a tax liability may arise in the form of capital gains and recaptured capital cost
allowance. If funds or other assets are not available to pay the tax liability, the shares or partnership interest may have to be sold, or business assets may have to be liquidated,
possibly for a price below the fair market value.

Life insurance can provide the funds needed to pay the tax liability that results from the capital gains and recaptured depreciation triggered by an individual’s death. Life insurance is a particularly valuable funding vehicle if the beneficiaries want to retain the property or if the market conditions will not provide the estate with an amount equal to the fair market value of the property. The individual could own the life insurance policy, or it could be owned by the
corporation or partnership and dispersed to the individual’s estate after death.

Split Dollar Life Insurance

Life insurance’s versatility makes it an excellent choice for meeting a dual need experienced by many small businesses. It’s common for one party within a business to need the financial protection that life insurance provides against death, either theirs or someone else’s within the
company, while another person needs a tax-sheltered investment vehicle.

One life insurance policy can provide for the needs of both parties by using an arrangement commonly referred to as "split dollar life insurance". In these arrangements, one party typically owns and pays for a level death benefit portion of the policy and the other party owns and
funds the remaining interests in the policy (generally the cash value).

In the business context, a split dollar arrangement can be used in a number of different ways. For example, an employer may need key person insurance on an executive and the executive might want a tax-sheltered investment. The employer and the executive could enter into a split
dollar arrangement where the employer pays for and owns a level death benefit on the life of the executive and the executive pays for and owns the cash surrender value component of the policy. The beneficiary of the level death benefit is the employer, while the beneficiary of the
cash value is designated by the executive (his or her spouse, for example).

Stay tuned for more information in Part III

www.manulife.ca

For more information, contact us via email or call 1-800-419-3723

Life Insurance Solutions for Small Business Owners

Life Insurance Solutions for Small Business
Owners - Part 1
From Manulife

Small businesses fail for a number of reasons, including lack of planning, poor management,
inadequate funds, downturns in the economy, debt overload, etc. As you work through your
business plan, you'll be looking for financial solutions that bring your business stability to
situations where you can be particularly vulnerable. You should plan for the unexpected.

Life insurance can provide a cost-effective solution for many situations that could threaten a small business, such as the loss of an owner or a key employee. This section provides an overview of how life insurance can be used to help a small business plan for the unexpected, including:

• Key Person Insurance
• Business Loan Protection
• Buy-sell Funding
• Funding Capital Gains Tax on a Business at Death
• Split Dollar Arrangements

We also look at how life insurance can provide small businesses with an opportunity for tax-advantaged investing and how it can be used as part of an enticing compensation package to attract the best employees.

Key Person Insurance

Business owners and other key executives spend considerable time and effort to acquire the knowledge, experience, judgment, reputation, relationships and skills that make them valuable to the business. When they die, the business loses a key member of the management team
and this can have a severe financial impact.

During the disruption that follows the death of a key player, lenders may cut back credit, creditors may press for immediate payment, debtors may delay making payments, employees and customers may lose confidence, and competitors may take advantage of the situation.

Large corporations are often in a much better position to prepare for key executive turnover because of sheer size and numbers. Unfortunately, in small business situations, finding an immediate replacement with the same qualifications as a deceased owner or executive is much
more difficult.

It is often necessary to look outside of the business to find a replacement, causing delays, disruption and reduced efficiency. The resulting effect on business profits may further weaken the financial stability of the business. In the absence of proper planning, the very survival of the
business may be affected by the death of a business owner or a key executive.

The impact of this situation can be considerably reduced if the business has purchased an insurance policy on the life of the business owner and/or key executives. If they die, the
life insurance proceeds give the business working capital to meet immediate cash needs and provide a source of funds for finding, attracting, hiring, and training a replacement for the deceased executive or to hire interim management.

Key person insurance provides assurance to a small business’s creditors and employees that the business will continue even if a key person dies. The life insurance proceeds provide immediate cash to cover the business’s working capital needs and to find and train a suitable replacement for the person who died. The value of these benefits to the business should far exceed the cost of the life insurance.

Business Loan Protection

It can be difficult to obtain adequate debt financing for a small business. Creditors will often require the business owner to personally guarantee a loan. The death of the business owner or another key executive may cause creditors to demand immediate repayment of outstanding
business debts.

This can place a significant burden on the business and 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. In addition, 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. If effective planning hasn’t taken place, the business may
not survive the owner’s or another key executive’s death.

A solution is for the business to purchase an insurance policy on the life of the business owner(s) or other key executives. Proceeds from the life insurance policy are taxfree and may be used to pay down the outstanding business debts.

A creditor may require a small business to purchase collateral life insurance to protect the creditor’s interests, particularly if the death of the business’s owner could affect the value of business assets used to secure the debt. In other cases, the business owner may simply want to ensure that business debts will be fully repaid if he or she dies to minimize financial risks for heirs and to permit the business to continue free of debt.

Generally, life insurance premiums paid for business loan protection are not deductible for tax purposes. However, if a life insurance policy has been collaterally assigned to a restricted financial institution, a portion of the premiums may be deductible.

A life insurance policy purchased for business loan protection can help a business negotiate loans and repay business debts with tax-free life insurance proceeds when a a business owner or another key executive dies. It can also prevent business owners or their estate from becoming
personally liable for the business debts if the owner dies.

www.manulife.ca

For more information, email us, visit our website or call our in-house Financial Advisor Bob McIntosh at 1-800-419-3723