250-953-2307Your Corporation Owns the Policy
Your corporation purchases a properly structured permanent life insurance policy, typically on the life of a shareholder. The corporation is generally both the owner and beneficiary of the policy.
Corporate Insured
Retirement Strategy
Corporate Insured Retirement Strategy
Turn Surplus Corporate Cash Into Tax Advantaged Retirement Wealth
As a successful business owner, you may be accumulating more money inside your corporation than you need for ongoing business operations.
The question is, what is the most effective way to use that surplus?
Taking the money out personally to invest may trigger significant personal tax. Leaving it invested inside the corporation can result in ongoing taxation of investment income and, depending on the amount of passive investment income earned, may also affect access to the small business deduction.
A Corporate Insured Retirement Strategy offers another approach. By using corporate-owned permanent life insurance to accumulate value inside the corporation, the strategy can help you build long term wealth inside your corporation, protect your estate, and potentially create access to additional cash flow during retirement.
Why Use Corporate Dollars?
One of the most important advantages of this strategy is simple, the corporation funds the policy directly.
If you first withdraw corporate income personally to fund an investment or personally owned insurance policy, you may have to pay substantial personal tax before you can use that money.
With a corporately owned policy, the premiums are generally paid directly by the corporation using corporate after tax dollars.
That can mean considerably less personal tax is required to fund the same amount of money first had to be withdrawn personally.
How the Strategy Works
Surplus Corporate Cash Funds the Strategy
Instead of moving surplus funds out of the corporation and potentially triggering personal tax, the corporation uses a portion of its available cash flow to fund the policy.
Value Accumulates Inside the Policy
Depending on the type of policy selected, funds within the policy can accumulate on a tax advantaged basis, provided the policy continues to qualify as an exempt life insurance policy under Canadian tax rules. This can provide an alternative to holding all long term surplus corporate assets in conventional taxable investments.
The Policy Builds Collateral Value
As the policy grows, its cash value may become a significant corporate asset. Subject to the policy values and lender requirements at the time, the policy may eventually be used as collateral for third party borrowing.
Access Capital During Retirement
Rather than surrendering the policy and potentially triggering taxation, borrowing against the policy may provide access to capital while allowing the insurance coverage and underlying policy values to remain in place. Depending on the structure, this borrowing can form part of a broader strategy to provide retirement cash flow to the shareholder.
Create Significant Estate Value
At death, the life insurance benefit is paid to the corporation. For a qualifying corporately owned policy, the portion of the death benefit exceeding the policy's adjusted cost basis can generally create a credit to the corporation's Capital Dividend Account, allowing a subsequent portion of the insurance proceeds to be distributed to Canadian resident shareholders and their estate as a tax free capital dividend, subject to the applicable tax rules.
One Strategy, Several Objectives
- Use corporate rather than personal dollars to fund the strategy
- Reduce the need to withdraw corporate funds personally during the funding years
- Create tax advantaged accumulation within an exempt life insurance policy
- Diversify long term corporate assets beyond conventional taxable investments
- Build collateral value that may support future borrowing
- Create an additional source of retirement liquidity
- Maintain permanent life insurance protection
- Provide estate liquidity at death
- Create a potential Capital Dividend Account credit for the corporation
- Facilitate the tax efficient transfer of corporate wealth to the next generation
Who Should Consider a Corporate Insured Retirement Strategy?
This strategy is not designed for every incorporated business owner. It is generally most appropriate for someone who:
- Owns a profitable incorporated business or professional corporation
- Has surplus corporate cash flow beyond normal business and personal requirements
- Is already adequately funding more conventional retirement strategies
- Has a long term investment horizon
- Has a need for permanent life insurance
- Wants to build additional assets for retirement
- Expects to leave a meaningful portion of wealth to family or the next generation
- Wants to explore alternatives to accumulating all surplus corporate wealth in taxable investments
Why Planning Matters
A Corporate Insured Retirement Strategy is not simply a life insurance policy with extra premiums. How the policy is designed can have a major impact on the outcome. Important considerations include,
- How much the corporation should contribute
- How long the policy should be funded
- The appropriate amount and type of insurance
- The balance between insurance cost and accumulation
- When policy values become accessible
- The potential tax consequences of accessing those values
- Future borrowing assumptions and interest rates
- The corporation's projected cash flow
- The shareholder's expected retirement income needs
- The anticipated estate value and Capital Dividend Account benefit
Corporate Insured Retirement Planning With InsureBizz
At InsureBizz Financial Inc., we do not begin with an insurance product. We begin by looking at your corporation, your available cash flow, your existing investments, your retirement objectives and the wealth you ultimately want to preserve for your family.
We can then model different funding levels and policy structures to determine whether a Corporate Insured Retirement Strategy provides a meaningful advantage within your overall financial plan.
Where appropriate, we work alongside your accountant, lawyer and other professional advisors to coordinate the insurance strategy with your corporate, tax and estate planning.
Your Corporation May Be Able to Do More Than Simply Accumulate Cash
If your corporation is consistently generating more cash than you require for business operations or personal income, it may be worth examining whether those surplus dollars can be positioned more effectively.
A properly structured Corporate Insured Retirement Strategy can potentially turn today's surplus corporate cash into tomorrow's retirement liquidity, permanent insurance protection and a significant estate asset.
Contact InsureBizz Financial Inc. to explore whether a Corporate Insured Retirement Strategy is appropriate for you and your corporation.