Life Insurance

A Promise for Tomorrow

Life Insurance is about safeguarding your family and business. It protects you during your wealth-building journey and can be used as a strategic financial tool to allow for a smooth wealth transition to your successors.

Different Types

There are two categories of life insurance, which can be broken down into term insurance or permanent insurance.

Term insurance provides an affordable option for risk management in the present, whereas permanent insurance, although pricier than term insurance, offers a relatively cost-effective method to handle future tax and estate obligations.

Term Insurance

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Permanent Insurance

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Corporately OWNED life insurance

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Corporately Owned Life Insurance Strategy

Many affluent Canadians don’t see a need for traditional life insurance due to their considerable assets.

However, corporate-owned life insurance can become an extremely effective method for these incorporated business owners or professionals to build wealth within their corporations, access this wealth tax-free while living, and pass it to beneficiaries without tax implications.

Re-directing Retained Profits

Shifting some of the retained earnings inside the corporation away from highly taxable investments.

Tax Sheltered Growth

The growth of the cash value and death benefit are tax-sheltered. Less tax means more money.

Tax-Free Payment

The death benefit proceeds are payable at death to shareholder’s estate as a tax-free capital dividend.

Policy Funded with Corporate Dollars

Premiums are paid with corporate dollars vs personal after-tax dollars, saving a layer of tax, therefore allowing for quicker accumulation.

Access to Your Capital & Liquidity

You maintain living access to the money deposited into the policy.

Covers Tax Liability Owing at Death

Creates immediate liquidity to pay your estate tax liability upon death. Ensures that other valuable assets are not sold (especially if it is not an optimal time based on market conditions).

Proven Dividend Performance

75+ years of consistent dividend returns (i.e.: dividends were paid during the great recession in 2008, dot-com bubble in 2000, black Monday in 1987, etc.).

Investment can Never Decrease

Death Benefit and Cash Value accumulated can never decrease. In other words, there is never a down year (as long as premiums are paid).

Safe Long-Term

Safe and Secure long-term strategy. Because volatility is negligible, you can stick it in a drawer and never worry about it.

Diversification

Most successful business owners can earn bigger returns in other ventures or investments, but almost all of the time, that just means more tax.

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Why wouldn't an incorporated business owner simply invest in other options that could potentially yield higher returns, and use their assets at the time of death to cover the estate taxes due to the Canada Revenue Agency (CRA)?

Upon gaining understanding of how the capital gains tax system operates in Canada, coupled with a high-level perspective of corporate and personal taxation, it becomes clear to our clients that permanent life insurance deserves consideration as an integral component of a robust wealth, tax, and estate plan.

 

The appeal lies in the tax-exempt growth, access to capital, and tax-free generational asset transfer it offers. Diversification is key to successful investing and, often, clients are merely redirecting low-yielding, highly taxed portions of their portfolios into the secure, stable, and tax-efficient environment provided by life insurance.

 

Many of our clients may not require traditional life insurance, but it’s interesting to note that those with significant wealth, who are also our most prosperous clients, typically have considerable life insurance coverage. They comprehend its value for themselves, their businesses, and their families, recognizing the substantial tax benefits offered by corporate owned life insurance and/or personally owned life insurance.

How can I access the capital or deposits I've invested in the policy while I'm still alive?

Contrary to traditional term insurance policies, with whole life policies, clients retain living access to the capital they’ve invested. When we structure permanent life insurance products for a client, we prioritize flexibility, allowing our clients to deposit less or more, contingent on their financial status in any given year.

 

Consider the money deposited into a life insurance policy as your private wealth reserve. Given that the cash value can never decrease, numerous Canadian financial institutions permit clients to use these policies as loan collateral. Clients can leverage the capital in their life insurance policy for business opportunities, real estate purchases, retirement income, etc. If a loan is taken for business purposes, the interest can be tax-deductible for the corporation.

 

Permanent life insurance products with a cash surrender value can be accessed during the insured’s living years in one of three ways. We work closely with our clients to advise on the most tax-effective methods to access their invested capital, should they wish to do so.

 

Our advice is geared towards avoiding any taxable policy dispositions. Option 1: cancel your policy and take the cash surrender value (almost never recommended). Option 2: take a direct policy loan from the insurance company. Option 3: secure a third-party loan from a Schedule A bank or credit union in Canada.

 

At death, any outstanding loan amounts against the policy would be paid off using the life insurance proceeds. The remaining life insurance proceeds would be paid to the corporation. We always advise our clients to consider all options and manage any loans against their life insurance policy prudently.

Why does the CRA allow corporations to deposit money into a policy, permit tax-free growth, and allow all deposits plus the accumulated growth to be withdrawn from the Corporation (in many cases) tax-free?

The Canada Revenue Agency (CRA) has established limits on the amount of money that can be deposited into these types of policies. Therefore, it is crucial to collaborate with an experienced advisor who specializes in corporate whole life policies. This ensures not only the correct initial structuring of the policy but also its ongoing review.

 

Whether you own a permanent life insurance policy personally or corporately, the favourable attributes of the product are the same; 1. Tax-exempt investment growth inside the policy, 2. Access to your invested capital while you are living and 3. Tax-free insurance benefit paid upon death. 

 

Whether it be life insurance or any other corporately held asset, capital dividends are generally preferred over regular dividends (i.e. – eligible or non-eligible).  Capital dividends are paid out to shareholders tax-free whereas regular dividends are taxable to shareholders.  The non-taxable portion of capital gains can be credited to the corporation’s capital dividend account (CDA).  Life Insurance proceeds (up to the cost base of the policy) can also be credited to the corporation’s capital dividend account (CDA). 

 

These advantageous tax regulations enable our clients to invest in a corporate life insurance policy using their less-taxed corporate dollars. Investments within the policy grow tax-exempt, and clients retain access to their invested capital. When they pass away, the proceeds received by the corporation can flow to our clients’ estate, either tax-free or largely tax-free. This assists in funding tax liabilities and enhancing wealth transfer.

 

Considering the integration of philanthropy and charitable giving into our clients’ planning could present an optional avenue to maximize tax-efficient planning outcomes. This approach has the potential to benefit not only their families but also the causes they hold dear.

More Choice. More Benefits.

Group Benefits I Life Insurance I Group Retirement

Choosing the right life insurance depends on your unique needs. The rate differences can be substantial, varying based on the type of coverage and among insurance companies. Working with a broker who can efficiently navigate the marketplace based on your specific needs is crucial.

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Windsor, ON, Canada
Head Office

Oshawa, ON, Canada