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Personalized insurance a good fit for business owners

Jul 10, 2023 | RBC Wealth Management


Business owners face risks, both to the business and your personal net worth. Learn how a customized insurance plan can address those risks in the new issue of Investor’s Edge.

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Running a business comes with inherent risks that can jeopardize not only the business itself but also your personal net worth. It’s important to create a customized insurance plan that allows for the transfer of risk to a reliable third party—an insurance company. By working closely with your legal professionals and selecting the right corporate structure, you can protect your personal assets while focusing on what matters most— your business, family, employees and income. 

Elements of a personalized insurance plan

A personalized insurance plan can be tailored to the unique needs of your lifestyle and encompass various types of coverage. For example, foundational coverage includes property and casualty insurance, while life insurance plays a vital role in safeguarding the business in case of your passing. Buy-sell agreements can help insure business partners. Business overhead and disability income protection policies safeguard both your business’ operational expenses and your personal income.

Factors to consider

When determining the optimal insurance coverage and policy types, it’s important to evaluate the value of assets needing protection. Analyzing financial documents like balance sheets and profits and loss statements helps to assess the necessary coverage. Additionally, considering your company’s profitability and how it distributes income to you aids in determining appropriate coverage. Engaging in a business planning interview with your financial advisor is an important step to defining goals and strategizing effectively.

Asset protection strategies for business owners

Incorporation may allow you to safeguard business and personal assets. Whether choosing an S Corporation, C Corporation or a limited liability company, incorporation creates a separation between your personal and business assets, shielding your personal wealth from business debts and liabilities. However, incorporation alone may not be sufficient. You will need to maintain a clear distinction between personal and business assets. Maintaining separate bank accounts and credit cards, refraining from commingling funds and adhering to diligent bookkeeping practices help to further shield your personal assets from potential risks. Creating a customized insurance plan is integral to safeguarding business assets. Such plans can offer additional layers of protection against mistakes, accidents or unforeseen circumstances. Insurance coverage mitigates potential risks and minimizes the financial impact on assets and business operations. 

Avoiding insurance pitfalls: common mistakes to avoid

Try not to underestimate insurance needs — Thoroughly assessing risks and consulting with your financial advisors and insurance professionals is an important step to determining the appropriate coverage levels required to help safeguard assets. 

Understand policy exclusions and limitations — To prevent surprises during claims, carefully review exclusions and limitations. Seek clarification when needed so that coverage aligns with expectations and minimizes potential gaps. 

Business is ever evolving and so are insurance needs. Regularly reviewing policies and making necessary adjustments will help you keep your coverage up to date. Actively reassessing coverage requirements allows you to mitigate possible gaps and confirm that policies align with changing needs. 

As a business owner, you can prioritize safeguarding your business and personal wealth with the help of a customized insurance plan. By considering various elements, protecting assets and avoiding common pitfalls, you can effectively manage risks and help secure your financial future.

Read additional articles in the Q3 issue of Investor's Edge.


Wealth planning