1. Keep business running with critical illness insurance
Thanks to medical advances, more people survive serious, life-threatening illnesses. However, recovery costs can strain the resources of businesses, and business owners.
Running a business is a labour of love and a tremendous amount of work. Without proper protection, the time and money spent building a business could be at risk.
Today we’re going to talk about how business owners can protect themselves, their loved ones and their business using critical illness insurance.
Critical illness insurance –
protection today and tomorrow

2. Agenda Business owners and critical illness insurance New material
Financial protection for business while alive
Critical illness insurance base policy
Financial protection for beneficiary at death
Return of premium at death rider
New material
Tool
Video
Diagrams
Ownership considerations
Case study
As we explore the benefits of critical illness insurance, we’ll look at how it can financially protect the business while the insured is alive, and provides financial protection for their beneficiary when they die.
We’ll also speak about a new tool that makes it easier to demonstrate the importance of this type of coverage for business owner clients.

3. Business owners and critical illness insurance
Financial protection while alive
Business owners and critical illness insurance
Whether a business owner wants to insure themselves, or another key person, a corporate-owned critical illness insurance policy may be a smart choice.
A life-threatening illness could affect a business owner’s ability to manage their business. However, with the lump-sum payment from a critical illness insurance policy, the business owner can keep their company operating while they focus on getting healthy.

4. How it works How it works:
In a corporate-owned critical illness insurance policy, the business is the owner, beneficiary, and payor of the policy.
That means if the business owner uses corporate dollars to buy the policy, and they (the insured) experiences a life-threatening illness, the corporation receives a lump-sum benefit, tax-free. If the corporation isn’t the policy’s beneficiary, a taxable benefit may apply.
Important note: Critical illness insurance premiums aren’t deductible by the corporation for tax purposes.
If the corporation transfers some, or all, of the lump-sum benefit to an individual, that person may have to pay taxes on that benefit as it would be considered a taxable dividend to the individual as a shareholder.

5. Critical illness insurance for your business
Why have coverage?
Critical illness insurance for your business

6. Keep business running smoothly
Remain on-schedule with debt repayment
Meet salary obligations to key employees
Hire new key employees
With the corporation as the beneficiary of the critical illness insurance policy, the business can continue to run smoothly.
Some examples include:
Remain on-schedule with debt repayment
Meet salary obligations to key employees
Hire new key employees

7. Safeguard retirement
Can help the business continue to operate without altering planned retirement goals
Business owners can rely on the critical illness policy, if the need arises, rather than relying on both corporate and personal investments to fund an illness
In addition to continuing operations running as usual, using critical illness insurance can help protect a business owner’s retirement or succession planning in tact.

8. Protecting a business’ financial plan
Critical illness insurance can protect their business assets
Having insurance allows business owners to continue investing rather than setting money aside for a potential illness
Critical illness insurance also allows the business to use their cash as desired, without interruption. It also means they won’t have to pull money from investments (or other insurance products) to ensure there’s enough set aside in case the business owner, or a key employee, become ill.
You and your client have worked hard to create a financial plan that meets their current and future goals. Simply put, by protecting your clients’ business interests you are also protecting your own business interests.

9. Return of premium at death
Financial protection at death
Return of premium at death
Many business owners may not realize that critical illness insurance can go beyond financial protection while they’re alive.
They can also cover themselves or a key person if they die without making a critical illness insurance claim.
The return of premium at death option is one way they can do so.

10. What is the return of premium at death benefit?
Provides the return of total premium if a claim hasn’t been made
Requires underwriting at the time of adding to the policy, unlike the return of premium at surrender benefit
Benefit will reduce if the coverage amount on the policy reduces or a partial return of premium paid under any return of premium rider
Payment of benefit
The return of premium at death benefit will be payable to the owner if the insured dies from any cause while the rider is active.
Exceptions
The return-of-premium at death benefit won’t be payable if any of the following benefits are payable:
The critical condition benefit
Return of premium at expiry benefit
Maximum return of premium benefit under the terms of any return-of-premium rider
Termination
The return of premium at death optional benefit rider will terminate on the earlier of:
The date on which Canada Life receives a request from the owner to terminate the rider
The date the policy terminates

11. How it works If business owner doesn’t make a critical illness insurance claim
When the return-of-premium at death option is added to a policy, when the insured person dies, the beneficiary* receives all the insurance premiums made by the business for the base policy, as well as all the premiums made for the rider.
Whether or not the rider is paid for by the corporation is up to the business owner; however, in this particular case, we assume the rider is paid for personally.
*Returned premiums are paid to the estate in the following provinces: New Brunswick, Newfoundland, Northwest Territories, Nova Scotia, Saskatchewan, Nunavut, Prince Edward Island and Yukon
In New Brunswick, Newfoundland, Northwest Territories, Nova Scotia, Saskatchewan, Nunavut, Prince Edward Island and Yukon, returned premiums are paid to the estate.

12. The rider – who should pay?
Personal
If the insured person is the “business”
Return of premiums are paid out the individual tax-free
Corporate
The insured person isn’t the sole owner
Succession plan already in place
Return of premiums paid to the corporation tax-free

13. Critical illness insurance for business owners
New tool

14. Business critical illness insurance+
Shows the benefits of purchasing corporate-owned critical illness insurance
Compares total costs of investments to insurance premiums
Compares benefit amount
Shows the client the value of adding a return of premium at death rider

15. Target clients
The new tool is best suited for business owners with one or more of the following:
No critical illness insurance
Maximum life insurance coverage
Key employees
Money not used for business operations
Financially able to self insure

16. Meet Doug
Case study

17. Meet Doug 50-year-old man, non-smoker from Ontario
Practicing physician through professional corporation
Wants permanent critical illness insurance
Financial plan shows he isn’t likely to need personal assets to fund his lifestyle in 15 years
A needs analysis shows Doug needs $500,000 in coverage for his business

18. Limited pay critical illness insurance solution
Example using Canada Life’s LifeAdvance, permanent level premium, paid up in 15 Years, Loss of independent existence, Second Event, $500,000 coverage
$22,893 per year in premiums
Doug wants the return of premium at death for his loved ones if he doesn’t make a claim
Return of premium at death annual premium $1,040

19. The setup
$22,893
Doug
$1,040

20. Coverage when it counts
Making a claim
Coverage when it counts

21. Coverage when it counts
Doug has a heart attack when he’s 60
Critical illness insurance benefit goes to business
Money covers ongoing business operation costs

22. Weighing his options Critical illness at age 60
Annual premium/investment
Total out-of-pocket cost
Amount available to corporation
Rate of return**
Critical illness insurance
$22,893
$228,930
$500,000
13.84%
Corporately-owned investments*
$271,997
3.11%
Corporate investments:
Growth rate = 4% (100% interest)
Tax rate: %
Corp tax rate: 50.17%
Remember the client is paying for a limited 15 pay but they are making a claim at year 10 so they’re only on the hook for 10 premium payments as the policy will end when they make a claim.
Investment assumptions:
*Investment using 4% growth (100% interest).
**This is the after-tax rate needed to achieve with investments.

23. Return of premium at death
What if no claim is made?

24. Coverage when it counts – at death
Doug dies at 85, without making a claim
Premiums he (and the business) paid go to his beneficiaries. These funds may be tax-free*
*The current tax legislation doesn’t address return of premium at death benefit and therefore they aren’t specially treated as taxable income.
The Canada Revenue Agency (CRA) hasn’t provided specific guidance on whether the return-of-premium at death benefit in a co-ownership
arrangement is tax-free.

25. Weighing his options Death at age 85 Annual premium/investment
Total out-of-pocket cost
Amount available to beneficiaries
Rate of return**
Return-of-premium at death option
$1,040
$15,600
$358,995
11.43%
Personally owned investments*
$26,209
1.93%
Corporate investments:
Growth rate = 4% (100% interest)
Tax rate: %
Corp tax rate: 50.17%
In this case, Doug dies at age 85 without having made a prior critical illness insurance claim. What that means is his beneficiaries receive all the returned premiums that Doug made using personally owned money, as well as what the business used to pay for the critical illness insurance policy.
*Personally owned investments at 4% growth.
**This is the before-tax rate needed to achieve with investments.

26. Options summary for your beneficiaries
Return of premium at death payable to shareholder’s beneficiary
$358,995
Investment 85 = $26,209
Corporate investments:
Growth rate = 4% (100% interest)
Tax rate: %
Corp tax rate: 50.17%
Invest return of premium at death premium ($1,040 for 15 years): 100% 4% tax rate = 53.53%
Return of premium at death paid to shareholder = year 35

27. Business critical illness insurance+ The benefits
Business owners can financially protect themselves from critical illness costs through their business
Distribute proceeds to business owner’s loved ones with the return of premium at death benefit