Corporate Critical Illness Protection With Potential Return of Up to 100 Percent of Premiums to the Individual
A serious illness can affect far more than personal health. For a business owner or key employee, it can also disrupt revenue, create additional expenses and place pressure on the corporation at exactly the wrong time.
A Shared Ownership Critical Illness arrangement allows the rights and costs under a critical illness insurance policy to be divided between a corporation, commonly a corporation and an insured shareholder or employee, under a written agreement.
The corporation can pay the portion of the premium associated with the Critical Illness benefit it is intended to receive, while the insured individual personally pays the portion associated with the Return of Premium rider and holds the contractual right to receive the Return of Premium benefit.
Depending on the policy and Return of Premium option selected, the potential Return of Premium can be up to 100 percent of the total premiums paid for the entire policy, including premiums funded by both the corporation and the individual, subject to the terms and conditions of the insurance contract.
A critical illness insurance policy is placed on the life of the shareholder, owner or key employee. The available benefits, Return of Premium options and ownership rights depend on the particular insurance contract.
The corporation and the insured individual enter into a written shared ownership agreement that identifies each party's rights, obligations, premium responsibilities and entitlement to policy benefits.
The corporation pays the portion of the premium associated with the Critical Illness benefit allocated to the corporation. If a qualifying Critical Illness claim occurs, the Critical Illness benefit allocated to the corporation is payable to the corporation to help it manage the financial impact of the insured shareholder or employee.
The insured individual personally pays the portion of the premium attributable to the Return of Premium rider and holds the contractual right to receive the Return of Premium benefit. Depending on the policy and rider selected, that benefit can provide for the return of up to 100 percent of the total premiums paid for the entire policy, not simply the portion personally paid by the individual for the Return of Premium rider.
If the insured person is diagnosed with a covered condition and satisfies the policy requirements, the Critical Illness benefit allocated to the corporation is paid to the corporation. Under current tax interpretations, a lump sum Critical Illness benefit received by the corporation is generally not taxable, provided the policy is considered accident and sickness insurance for tax purposes.
If no Critical Illness benefit has been paid and the Return of Premium benefit becomes payable under the terms of the policy, the individual who personally funded and owns the rights to the Return of Premium rider receives the Return of Premium benefit. Depending on the policy and Return of Premium option selected, this benefit can be up to 100 percent of total premiums paid for the entire policy, including premiums funded by both the corporation and the individual.
If a covered Critical Illness occurs, the corporation may use the benefit according to its business needs. Depending on the circumstances, this could include:
The Return of Premium component is one of the most important features of the shared ownership strategy.
The individual personally funds the cost attributable to the Return of Premium rider and owns the right to receive that benefit. Depending on the policy selected, the potential Return of Premium can be up to 100 percent of the total premiums paid for the entire policy, including the portion funded by the corporation.
This means the corporation can fund the portion of the insurance cost allocated to its Critical Illness protection, while the individual separately funds the Return of Premium rider and may ultimately receive the contractual Return of Premium benefit if it becomes payable.
Shared Ownership Critical Illness planning requires careful documentation. The allocation of premiums and benefits should reflect the rights actually provided to each party under the policy and the written agreement.
At InsureBizz Financial Inc., we examine the Critical Illness risk to the business, the amount of protection required, the available Return of Premium options, the proposed allocation of premiums and benefits, and how the arrangement fits within the client's broader corporate and personal planning.
Because shared ownership involves corporate, personal and tax considerations, the arrangement should be supported by a properly drafted written agreement and reviewed with the client's tax advisor where appropriate.
A serious illness can create an immediate financial challenge for a business. A properly structured Shared Ownership Critical Illness arrangement can provide corporate protection when a covered illness occurs, while separately giving the insured individual the contractual right to the potential Return of Premium benefit.
Contact InsureBizz Financial Inc. to explore whether Shared Ownership Critical Illness planning is appropriate for your business and family.
250-953-2307