What Is Corporate Owned Life Insurance?
Life insurance can be owned in one of two ways: corporately or personally. Both have their advantages and disadvantages, but in the right situation there can be some serious benefits to putting your life insurance into your company. Corporate life insurance can offer a tax advantaged solution to protecting your assets or providing capital upon the death of a shareholder.
Our financial advisors can help determine the right insurance based on your needs.
Is Corporate Life Insurance Right for You?
Before making any decisions on who should own a life insurance policy there are a few key considerations. The first consideration is determining the purpose of the life insurance. If the purpose is to cover a business loan, fund a buy-sell agreement, or provide protection for a key person, then it makes sense for the corporation to own the policy. If the purpose of the insurance is something along the lines of providing income to a spouse and children in the event of your death, it might be less hassle for everyone involved to pay for it personally. The second consideration is when and where the insurance proceeds would be needed. Are they needed by the corporation, your estate, or another beneficiary? All of these factors should be taken into consideration when deciding who will own and pay for a life insurance policy.
If it is determined that it would be efficient for the corporation to own the life insurance, the key advantage to using the corporation is how it is taxed. Corporations are typically taxed at a lower rate than individuals in Canada. By paying premiums out of corporate after-tax dollars instead of personal after-tax dollars there are significant savings to be had.
Mr. Smith took out a business loan and needed life insurance to cover the loan in the event he died. Mr. Smith is trying to decide if it makes more sense for his corporation to own the policy and pay the $1000 premium or for him to pay it personally. Mr. Smith is subject to a personal tax rate of 50%, while his corporation is subject a tax rate of 30%.
If Mr. Smith pays the premium he will have to earn $2000 to pay the $1000 per month premium ($2000 x 50% tax). If the corporation pays the premium it will only have to earn $1429 to pay the premium of $1000 ($1429 x 30% tax).
From a number of perspectives, it is clear that Mr. Smith would be better off to have the policy paid for inside of his corporation. If Mr. Smith dies the life insurance benefit will still be paid tax free into the corporation, assuming he made the corporation the beneficiary. A large portion of the life insurance proceeds would then be credited to the corporation’s Capital Dividend Account (CDA). The proceeds can then be paid out of the CDA tax free to shareholders to cover any loans or expenses necessary after Mr. Smith’s death.
Discover the Benefits of Corporate Life Insurance
Corporate life insurance can be a great business and estate-planning tool. While it may not be the right solution for everyone, there are some key advantages to placing your life insurance into your corporation. Contact the financial advisors at Qopia Financial to learn more.
Qopia Investments is a trade name of Aligned Capital Partners Inc. (ACPI). ACPI is regulated by the Investment Industry Regulatory Organization of Canada (www.iiroc.ca) and a Member of the Canadian Investor Protection Fund (www.cipf.ca). Qopia Investments is registered to advise in securities and mutual Funds to clients residing in Alberta, Ontario, Saskatchewan, and British Columbia. This publication is for informational purposes only and shall not be construed to constitute any form of investment advice. The views expressed are those of the author and may not necessarily be those of ACPI. Opinions expressed are as of the date of this publication and are subject to change without notice and information has been compiled from sources believed to be reliable. This publication has been prepared for general circulation and without regard to the individual financial circumstances and objectives of persons who receive it. You should not act or rely on the information without seeking the advice of the appropriate professional.
Investment products are provided by ACPI and include, but are not limited to, mutual funds, stocks, and bonds. Non-securities related business includes, without limitation, fee-based financial planning services; estate and tax planning; tax return preparation services; advising in or selling any type of insurance product; any type of mortgage service. Accordingly, ACPI is not providing and does not supervise any of the above noted activities and you should not rely on ACPI for any review of any non-securities services provided by
Investment products are provided by ACPI and include, but are not limited to, mutual funds, stocks, and bonds. Non-securities related business includes, without limitation, fee-based financial planning services; estate and tax planning; tax return preparation services; advising in or selling any type of insurance product; any type of mortgage service. Accordingly, ACPI is not providing and does not supervise any of the above noted activities and you should not rely on ACPI for any review of any non-securities services provided by Qopia Financial.
Any investment products and services referred to herein are only available to investors in certain jurisdictions where they may be legally offered and to certain investors who are qualified according to the laws of the applicable jurisdiction. The information contained does not constitute an offer or solicitation to buy or sell any product or service. Past performance is not indicative of future performance, future returns are not guaranteed, and a loss of principal may occur. Content may not be reproduced or copied by any means without the prior consent of the author and ACPI.Disclosure of commissions in mutual funds in accordance with NI 81-102 (15):“Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated”.
Life Insurance & Group Benefits Advisor
I love what I do and care for the people I help. I believe in choices and the cliché one-size-fits-all fits no one. My specialty revolves around helping business owners with both their group benefit needs and business succession plans through insurance products. Our team at Qopia Financial provides coverage that’s completely customized for your unique needs, whether the concern is for yourself, your family, or your business.
We are committed to providing you with professional advice and personalized service. Whether you are purchasing your first home, starting a small business or the CEO of a large company, our team has the knowledge and expertise to provide you piece of mind.