Life Insurance For the Business Owner

Let us suppose you have a business worth $3,000,000 and other assets worth $1,000,000.  Everything is looking good.  I approach you about life insurance.  You suggest that the business is your estate.  The wife and children will have $4,000,000 in the event of your death.

What should I do next?  I propose that we look at the problem from another perspective.

Suppose I have a client who is a young widow with children.  She has no experience running a business.  She has $3,000,000 cash and another $1,000,000 in other assets.  She comes to me for investment advice.  I tell her that I have an opportunity.  I know a business that is young but growing and prosperous and worth $3,000,000.

The business is worth $3,000,000 but the founder, principal decision maker, customer relations person, inventor, and the person the bank and suppliers trust will not be available to manage it, but maybe the employees can look after that.  I recommend that she buy and she does.

Do you think I am guilty of malpractice and should be held financially responsible when the business eventually fails or is sold, under pressure, for a low price?

You will answer yes and you will be right.

Why then does it make sense for you to force your hypothetical young widow into the exact same situation?  Except for the ability to sue me, that is.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.