corporate Insurance PLANNING FOR BUSINESS OWNERS
When you are full of ideas for starting a new business, all you can see is what’s going to happen tomorrow. The thought of having their vision turned to reality often blinds new entrepreneurs to that all-important question: Does it all makes sense financially? While passion is key to turning vision into a functional business, prudent insurance planning is critical to ensure that reality comes to fruition, and continues to survive and thrive!
WHY insurance PLANNING IS IMPORTANT FOR BUSINESS OWNERS
Just as even the savviest of pilots can’t always fly blind all the time, so too is the case with business owners. Meticulous insurance planning, for the short-term, in the intermediate period, and for the long-term horizon, is vital if a business is to succeed.
Without a sound insurance program, even the best of business ideas might soon falter and perish. This is the essential protection for any venture to succeed, expand and flourish in the long run despite any setbacks along the way.
Do you have excess retained earning inside of your corporation?
Do you have a method to get money out of your corporation in a tax-efficient manner?
You've worked hard for many years to build a thriving business, and you have accumulated a significant amount of retained earnings. Your corporation now consistently generates more cash than you need on a day-to-day basis. Excess cash sitting in investments inside your corporation is taxed as passive investment income at the highest corporate tax rate. This hinders your growth year after year. You can take the money out as a salary or as a dividend, but there are significant taxes incurred as well.
Corporate-owned life insurance is an effective tool for dealing with many tax and estate planning challenges, both corporately and personally. There are two major advantages for using this type of solution: It allows for accumulation of cash surrender values within the policy which is exempt from annual taxation, and it pays out a tax-free benefit upon the death of the insured, known as the death benefit.
There are 3 strategies that are typically positioned when implementing a tax-
advantaged life insurance policy:
Accumulation – By distributing a portion of your company’s excess cash from passive investments into tax-advantaged permanent life insurance, growth is no longer eroded by income tax. This creates a tax-sheltered environment for the future growth of your money.
Income – Over time, you have the ability to access the policy’s cash value in several ways, including the use of the policy as collateral for a line of credit. In many cases, you are able to use these loan proceeds as an income stream both personally or for your business with minimal tax liabilities.
Legacy – Upon death of the insured, the collateral loan will be paid off by the policy’s death benefit. The remaining death benefit (less adjusted cost basis - ACB), is paid to your company’s capital dividend account and in most cases is eligible to be paid as a tax-free dividend to shareholders.
This concept is effective in many circumstances, however, may not be for everyone. The information is general in nature and not intended as legal or tax advice. We encourage consultation with your legal, accounting and tax advisors to determine whether this strategy is suitable for you. If deemed suitable, a personalized program can be prepared to align with both your personal and corporate goals.