Insurance for Businesses: What You Need to Know

As an entrepreneur, protecting your business is important. You’ve invested your time, energy, and money into creating your new enterprise, which is why it’s so imperative that you take all the necessary steps to protect it.

Regardless of its size or scale, having the right insurance can give you peace of mind, knowing that your efforts won’t be destroyed because of a disaster. This article addresses the different kinds of coverage available for your business and the advantages of each.

Why is Insurance Necessary?

If you are just starting your company, then you’re probably trying to keep costs as low as possible. Adding insurance to the mix at this point might seem premature, particularly if you don’t have a lot of available cash right now. However, consider these potential scenarios and how they could not only impact your business but your family as well.

Disability

What happens if you get injured and can’t work? If you’re the lynchpin for your enterprise (i.e., you run most of the day-to-day operations), it would be devastating if you’re not financially protected.

Also, you may have left a full-time job in order to start your own business.  As a result, you might have given up an employee benefit program that included personal disability coverage.  As a business owner you are particularly vulnerable to a disability in that not only may the business be in jeopardy but where would the money come from to sustain your family? Having adequate long term disability coverage and/or critical illness coverage for the benefit of both the company and your family might well be the answer.

Also, consider disability not just for yourself, but for any key employees you may have. What happens if your manager or lead staff gets hurt or sick and can’t work? How are you going to recover the profits that will most likely be lost?

Death

Although no one wants to consider the possibility of sudden death, you never know what tomorrow may bring. If you have a business loan in your name, how will that loan be repaid if you’re gone? Will your family be able to come in and take over if the worst happens? Having insurance can provide peace of mind, no matter what happens.

Natural Disasters

Mother Nature can be devastating if you’re not prepared. Floods, earthquakes, and other disasters can impact your business in a variety of ways. Even if your property is not physically damaged, what if you lose power? What if deliveries can’t get through? If disaster strikes, how will your company manage the fallout until things get back to normal?

What Insurance Do You Need?

Overall, paying for insurance is one of the smartest investments you can make. There are many different options available, so let’s break them down to see which ones are going to have the best impact on your business.

Individual Life Insurance

If you are the key person for your company, then you need life insurance. Whether you’re running all operations, or everything is under your name, being adequately insured can protect your business and your family in case the worst happens. For example, if you provided collateral for your bank loan, a death benefit can help cover that, as well as operational costs, until a replacement is found.

If you own your venture in partnership with someone else, you will want to explore life insurance to buy out each other’s business interest.  Should your partner or fellow shareholder die, it is likely that you will be obligated to buy your partner’s interest from his or her estate.  It is also likely that there would not be sufficient cash to accomplish this.  There are also significant tax benefits in using life insurance to buy out a deceased’s shareholders interest in the company. Life insurance is often the most efficient way to fund shareholder agreements.

Disability Insurance

 Many people overlook this type of insurance, but it can save you and your company if you ever do become disabled and can’t work. Life insurance alone won’t protect against disability, so it is advisable to obtain this type of coverage in addition to any other plan you have in place.

Business Overhead Insurance is another type of disability coverage that is available.  This helps cover the costs of the company’s operating expenses if you’re unable to work and must find a replacement.

Key Person Insurance

 If you have an employee or manager that is vital to your success, key person insurance is a smart move. This way, if that person dies or becomes disabled, the company could receive benefits that will help cover the costs of replacing him or her. You would readily insure your equipment and premises, so why not insure your most important corporate assets – you and your key personnel?

Property Insurance

This kind of policy is not only necessary, but many landlords require that you have a plan before signing a lease. Property insurance can not only protect the building itself but any equipment or other assets inside. Make sure that your policy insures against all kinds of damage, including theft or fire. Also, keep in mind that you will need a separate plan for natural disasters like flooding or earthquakes. There are also policies available that will protect profits lost due to unforeseen events.

Employee Benefits

 While insurance for yourself is crucial, you should also consider providing it for your employees. Having a comprehensive employee benefit program can be an excellent incentive for new hires, ensuring that you bring on and retain the best people possible. Overall, employees are much more willing to work for a company that provides benefits, such as:

  • Extended Health Insurance – having a plan that covers hospital and travel benefits, professional services such as chiropractors, therapists and massage practitioners will be most appreciated by your employees.

  • Vision and Dental – this type of coverage is especially appropriate for employees with a family. The dental coverage can even be designed to include orthodontic benefits.

  • Disability Insurance – government benefits and worker’s compensation don’t always provide adequately for workers.

  • Retirement Planning – if most of your employees are planning on working for the long term, offering retirement plans can ensure that you retain the best of the best. While your company may not be mature enough to consider a Registered Pension Plan, matching contributions to an employee group RRSP may be the answer.

  • Life Insurance – in many cases, businesses offer group plans for all of their employees. However, because these policies usually don’t allow for individual consideration you may also wish to provide the option for your employees to buy additional insurance if they wish.

Bottom Line – take insurance seriously 

No matter what kind of business you’re running, having the right insurance in place can provide you with confidence and peace of mind.

As always, please feel free to share this article with anyone you think may find it of interest.

Private Health Spending Plans for the Owner/Operator Business

Individuals who have incorporated their business such as consultants, contractors and professionals often find that providing affordable health and dental care coverage for themselves and their families can be an expensive proposition.

Take Bob for example. Bob had just left his architectural firm to set up on his own. In looking at the options available for him to replace his previous firm’s Extended Health and Dental coverage for he and his family, he discovered that the monthly premium would be between $400 and $500 per month. This was for a plan that didn’t provide coverage for all practitioners and procedures, had an annual limit on the benefits, and a co-insurance factor of 20% (only 80% of eligible costs were covered). There wasn’t even any orthodontia coverage although he could purchase that in limited amounts at an additional cost! He also had to move quickly to replace his lost coverage as he had a pre-existing condition that most likely would not be covered if he waited too long to implement the new plan.

It seemed to Bob that there was a possibility of not receiving full value for his extended health and dental premiums. It was possible that he would spend far less than the $6,000 of premiums he would pay over the course of the year. The monthly premiums were also not tax-deductible. Fortunately, Bob found out about the Health Spending Account (HSA).

What is a Health Spending Account?

An HSA is becoming a popular alternative to traditional health insurance. An HSA is defined by the Canada Revenue Agency as a Private Health Spending Plan. Under the terms of a PHSP, eligible small business owners can;

• pay for their family’s medical expenses

• deduct the cost from the business income

• not have the benefit taxable to the business owner/employee

This article focuses on HSA as it applies to a one-person owner of a small business corporation. As you might expect, there are guidelines that must be met and restrictions that will apply.

• These plans cannot be for shareholders only. The shareholder must be a valid employee and receive a portion of his or her remuneration in the form of salary.

• The CRA prefers that the corporation employ the services of a third party to manage the plan and adjudicate the claims.

It is in the business owner’s best interests to use the services of a Third-Party Administrator (TPA) who specializes in PHSP’s to ensure that all the requirements are met, and all claims and payments are valid.

What does an HSA cost?

The cost of the Third-Party Administrator is very reasonable. There is usually an initial set up charge of a few hundred dollars and on-going fees run 5% to 15% of the claimed amount (plus taxes), with the typical fee being approximately 10%.

Some firms also charge an annual fee, so it is best to shop around or ask your financial advisor for advice. Being able to submit claims online and receive reimbursement by EFT almost immediately is a benefit that many of the third-party administrator’s offer.

How does it work?

Bob’s first experience with his HSA illustrates how the plan works. The HSA that Bob had implemented is referred to as a Cost-Plus plan which is the most popular arrangement with one-person corporations.

Let’s Break it Down

• Bob’s daughter started orthodontic treatments and his first charge was $1,000.

• Bob paid this amount by credit card (yes, he got points for that).

• Bob then forwarded the receipt for his payment directly to the TPA who would reimburse Bob his full $1,000.

• The TPA then bills Bob’s company for the amount of the treatment plus their 10% charge.

• Bob’s company pays the invoice and gets to deduct the $1,100 from corporate taxable income.

• The payment Bob’s company made is not taxable to Bob.

A good result! Bob has his expense reimbursed tax-free while his company gets to deduct the amount of the payment plus the administrative cost.

What are the advantages of an HSA?

• All medical procedures, necessary equipment and certified practitioners as listed by the CRA are covered in full.

• There are no medical questions for starting a plan and no pre-existing conditions clause to satisfy.

• All dependents may be covered.

• Deductible portions or shortfalls in other plans can be claimed.

• Benefits are not taxable while the costs to the corporation are tax-deductible.

As with any government regulated plan, make sure you employ the services of those who are experienced in advising on PHSP’s. They will not only guide you as to the best way to set up your plan, they will keep you out of trouble once you do.

As always, please feel free to share this with anyone you think may find it of interest.

Ontario Budget 2018

The 2018 Ontario budget features a number of new measures and billions of dollars of enhanced spending across the spectrum, as announced by the province’s Finance Minister, Charles Sousa. Read on for some of the key proposals.

Personal

Eliminate Surtax

A new sliding scale for personal income tax will be introduced, with seven personal income tax rates which will be applied directly to taxable income, in an attempt to eliminate Ontario’s surtax. The province estimates that approximately 680,000 will pay less tax as a result.

Free Tuition

Access to further education will be income linked, with those families with an income of less than $90,000 per year receiving free tuition and families with an income of between $90,000 and $175,00 per year receiving financial aid for tuition costs.

Free Pre-School Child Care

Effective in the Fall of 2020, children aged two-and-a-half until they are eligible for kindergarten can receive free licensed child care. 

New Ontario Drug and Dental Program

For those without workplace benefits or not covered by OHIP+, this program offers up to 4.1 million Ontarians a benefit that pays up to 80% of expense up to a cap of $400 for a single person, up to $600 for a couple and $50 per child in a family with two children, regardless of their income.

Free Prescription Drugs

The budget announces the introduction of free prescription drugs for those aged 65 or older, resulting in an average of $240 per year in savings per senior.

Charitable Donation Tax Credit

The non-refundable Ontario Charitable Donation Tax Credit will be tweaked to increase the top rate, remaining at 5.05% for the first $200 but increasing to 17.5% for anything above $200.

Seniors’ Healthy Home Program

$750 is offered to eligible households with seniors of 75 years of age or older to help them to care for and maintain their residence.

Corporate

R&D Tax Credit

The budget introduces a non-refundable tax credit of 3.5% on eligible costs relating to R&D, or an enhanced rate of 5.5% for eligible expenditures of $1 million plus. Note that this enhanced rate would not be payable to corporations where eligible R&D expenditures in the current tax year are less than 90% of eligible R&D expenditures in the tax year before.

Innovation Tax Credit

The existing Ontario Innovation Tax Credit will see changes to its credit rate in the following way:

·      If a company has a ratio of R&D expenditures to gross revenues of 10% or less, they will continue to receive the 8% credit.

·      If their ratio is between 10% and 20%, they will receive an enhanced credit rate of between 8-12%, calculated on a straight line basis.

·      If their ratio is 20% or more, they will receive an enhanced credit rate of 12%.

Ontario Interactive Digital Media Tax Credit

Eligibility to receive this tax credit will be broadened to include film and television websites.