What is Executive Insurance?

Executives are exposed to a broad range of risks while representing the company, including lawsuits from clients, employees, and investors. It is important your key employees are financially protected from claims arising due to the decisions made on behalf of the company. This is where executive insurance comes into play. It protects your business and key employees against a variety of claims by covering associated legal costs and damages.

Along with executive insurance, you may also want to consider executive life insurance, which serves as a tool to attract and retain talented professionals. Here’s what you need to know about these two financial products.

Understanding Executive Insurance

Executive insurance, sometimes also referred as officers insurance, is a type of insurance that protects senior executives from a variety of risks. It typically includes directors and officers (D&O) insurance and employment practices liability insurance. D&O insurance protects senior executives from claims arising from their actions and decisions. Covered events include misleading statements, breach of duty, wrong trading, error or neglect, and breach of trust. Employee practices liability insurance, in contrast, protects executives and other key employees from a range of employee-related claims, including discrimination, harassment, and wrongful termination.

Please note executive insurance and executive bonus life insurance are not the same thing. Executive insurance protects a key employee from personal losses if they are sued for actions they take on behalf of the company. Executive bonus life insurance, on the other hand, is a permanent life insurance that a company buys for its key employees.

What is Executive Bonus Life Insurance?

Think of executive bonus life insurance as an employee-benefit arrangement in which the employers pays bonus compensation to its key employees in the form of life insurance premium payments. The employers takes out a permanent life insurance policy for each of its key employees and makes all the premium payments. The key employee owns the policy and its cash value and is free to name anyone as the policy beneficiary. The designated beneficiary or beneficiaries receives the death benefit at their death. The bonus may be tax-deductible to the company but is counted as an additional income for the employee and, as such, is taxable.

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How Does Executive Bonus Life Insurance Work?

Executive bonus life insurance is a type of executive bonus plan wherein the employers funds a permanent life insurance policy for certain employees. The employer is responsible for paying the premiums. The life insurance plan provides a death benefit for the employee’s loved ones, if he or she passes while the policy is in force.

Here’s how it works:

• Executive bonus life insurance can be a key recruitment and retention tool for the key employees of your company
• The employers takes out a permanent life insurance policy on the life of each of its key employees pays all the premiums as a bonus to these employees
• The employee owns the policy and its cash value and designates the beneficiary
• The employee can use the cash value in anyway they like
• The designated beneficiary receives the sum assured in the unfortunate event of the insured’s demise, provided the policy is active at the time of death
• The employer may receive a tax break on the premium payments
• The amount of premiums paid is taxable to the employee

Why is it Important to Have Executive Insurance?

Executive insurance is important because it protects you, the business owner, and your key employees from damaging disputes. With a robust executive insurance plan in place, you and your senior executives, directors, and other top-level employees will not be personally liable for breaches, dismissal, or discrimination.

Conclusion

Executive insurance is a packaged policy that includes different insurance covers. It is the best way to protect your business and company executives from claims made against them for their business decisions. Another insurance product that’s worth looking into is executive bonus life insurance. It acts as a recruitment and retention tool for the key employees of your company.

Not sure whether your business require both coverages? Let Dundas Life help you. Our advisor will explain ins and outs of executive insurance and executive life insurance to help you make an informed decision. Book a call with us. We will also help you compare deals from the biggest carriers in Canada so you can get the best value for your money.

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FAQs

What types of risks does executive insurance cover?

Executive insurance protects a company’s key employees from personal losses if a claim is filed against them for real or perceived wrongful acts in managing the company. Claims may include breach of fiduciary duty, misuse of company funds, misrepresentation of company’s assets, wrongful termination, harassment, discrimination, and failure to promote, among others.

How is executive insurance different from life insurance?

Executive insurance protects the personal assets of your senior executives, directors, and corporate officers in the event of a lawsuit alleging breach of trust, discrimination, or similar allegations. Life insurance, in contrast, is a financial tool to help you take care of your family after you’re gone. Your loved ones receive a tax-free, lump-sum payment at your death.

Why some employers offer executive bonus life insurance to their key employees?

Employers use executive bonus life insurance as a tool for attracting, retaining, and rewarding key employees. It allows them to provide supplemental benefits to their most important employees. The employer pays all the premiums while the policy is owned by the key employee. Since the amount of premiums paid can be tax deductible to the employer, executive bonus life insurance allows businesses to use tax-deductible funds to offer valued benefits to important employees.    

How can businesses ensure they buy adequate executive insurance cover?

The amount of executive insurance coverage your business needs depends on factors such as the nature of your business, your company’s size and ownership structure, and the number of key employees. An independent insurance advisor can evaluate potential risks and offer personalized advice tailored to your company’s specific needs.