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Corporate Owned Life Insurance | LSM Insurance - YouTube
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corporate-owned life insurance
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personally owned or corporately owned
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that's the question especially if you're
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business owner considering the purchase
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of life insurance life insurance is an
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important piece of any business and can
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be a tremendous asset to your business
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in the following ways key person
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insurance in the event that the loss of
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a key person would mean a monetary loss
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for the company in this situation the
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corporation is the owner and beneficiary
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by cell insurance can be used to help
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settle a buy sell agreement between two
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or more partners in this instance the
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corporation owns the policy on the
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shareholders and on the death of a
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partner the corporation can redeem his
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or her shares there are at least five
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ways to set up by cell insurance which I
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will discuss in a later article the
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state or secession planning this will
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help fund this transfer of shares to
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charity family or other business
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partners in this situation you need to
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be aware of the rules regarding taxable
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benefits when the insured is a
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shareholder versus an employee or when
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the beneficiary is a spouse rather than
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the corporation taxes payable life
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insurance can be used to offset tax
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liabilities on death which negates the
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need to sell your assets and an
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inopportune moment the proceeds will
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then typically be deposited into the
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capital dividend account the CDA for
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further disposition to shareholders
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tax-free charitable bequest finally life
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insurance can ensure that a charity will
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receive a designated amount of money all
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of these life insurance options can be
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personally owned or corporately owned
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and which one is right for you will
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depend on the following factors what is
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the purpose of the insurance who will
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receive the proceeds of the insurance
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how quickly will the funds be required
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disposition of proceeds keep in mind
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that on death the designation of the
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beneficiary will determine whether there
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will be tax issues or not assuming the
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life insurance policy is owned and paid
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for by the corporation but to really
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break it down and determine whether
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corporately owned life insurance is
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right for your circumstances you may
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want to weigh the following attributes
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benefits premiums are paid by the
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company while deducting the premium is
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it typically possible you can have your
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company pay the premium of a company own
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policy the benefit of this is the
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typical difference in tax rates that
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come with small businesses capital
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dividend accounts or CDA's are an option
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he can be used to funnel the proceeds of
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the life insurance policy tax-free at
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the death of a shareholder as an added
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bonus capital dividends do not reduce
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the adjusted cost basis of the shares
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multiple insured parties under one
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umbrella often with a multiple ownership
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corporation and buy sell insurance in
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particular there may be a considerable
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age or various underwriting premium
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differences in rates for the parties
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insured which causes unequal premium
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rates between the people involved a
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corporate owned policy can close the gap
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and solve the various inequities in
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premium rates that come with each
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individual paying their own policy
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available for universal and whole life
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policies these policies have cash values
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that build up over time and are
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considered an asset to a corporation
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however a split dollar strategy is also
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an option where the cash value belongs
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to the employee but the death benefit
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goes to the corporation peace of mind
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when asked many business owners just
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prefer to pay out as much as they can
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from their corporate account rather than
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their personal account this is mainly
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because the tax benefit outlined above
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things to keep in mind there is no
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creditor protection while individual
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life policies are creditor protected
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corporate policies are not the share
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value increases when the insured
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shareholder dies the cash surrender
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value of the corporate owned policy can
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potentially increase the value of the
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shares raising the cost for family
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members who may wish to buy them issues
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regarding the net family property
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designation in Ontario under the new
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Family Law Act a surviving shareholder
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who uses the life insurance proceeds to
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purchase shares from the
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seize the state would not be able to
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claim those shares they bought as net
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family property however in cases where
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the shareholder uses a tax-free capital
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dividend from the corporation it has yet
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to be established whether this would be
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considered using the life-insurance
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proceeds to avoid the net family
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property calculation certain policies
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could jeopardize the preferred tax rate
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benefit CRA requires that 90% of a
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corporation's assets be used in an
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active business it's possible that the
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cash value that comes with universal
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life and whole life policies may be
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considered passive and not an active
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business asset which could jeopardize
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your ability to qualify for the
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preferred tax rate benefit Barrowman the
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entire books have been written on the
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subject
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so clearly this only scratches the
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surface you should check with your
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insurance and tax advisor to make sure
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you have the most up-to-date information
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tax rules change all the time we would
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be happy to help so call us at one eight
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six six eight nine nine four eight four
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