The Hot, New Tax Strategy Hiding in Plain Sight

If you are at the helm of a profitable corporation or simply a high-income earner, you may be missing out if you have not seriously investigated the advantages that come with the purchase of a corporate owned or private placement life insurance policy. Life insurance products have proven to be very attractive to people in higher income groups, as they can be a part of retirement planning, a legal tax shelter, as well as a way to protect a business in case of the retirement or death of a key player.


How it works


You purchase a private-placement life-insurance policy, and then the insurance company invests in alternative assets. If there are any profits they would normally be taxed as capital gains however, because it involves an insurance company, which must abide by certain industry regulations the money is allowed to grow tax-free. Beneficiaries are able to collect their money when the insured person dies.


In the case of a corporate owned policy, the structure of the plan is very similar as it is still based on insuring a person and therefore premium cost still depends on the health status of the individual being insured. Term insurance can be great for a corporate-owned policy as it provides cash-on-hand and is a more economical way to provide maximum coverage for any serious unforeseen scenarios in the future.


If you feel that corporate-owned life insurance may be the right thing for your company, there are some basic criteria you will need to meet. Ideally, the company should be profitable with a long-term future and have already been operating for at least 15 years. Also, if you are looking for a policy that provides cash values then there is a need for protection over the next 15 to 20 years.




Purchasing life insurance products provides individuals and corporations with the unique ability to build up tax-sheltered money within the insurance contract. So, while not as straightforward as buying a mutual fund, insurance can be compared to having a limitless tax-free savings account.


When you are finally ready to extract value from your policy, there are two ways to do it. The first is withdrawn from the policy in the form of cash, and the second is to borrow against the policy. The latter is a more tax-effective method, as withdrawing cash values may result in a taxable disposition.


Corporate-owned policies are transferable in the event that the insured individual leaves the company for any reason, or the insurance is no longer necessary overall. It can be transferred directly to the individual, to another related corporation or even to a charity.


A number of Canada’s life insurance companies offer whole life policies with a very high consistency of returns in the form of dividends paid on the accumulating balances inside these policies. The low volatility of returns, along with the tax-free payout of these amounts upon the death of the insured, can create attractive internal rates of return.


Make sure to connect with your financial advisor to learn more about the potential of insurance products to grow your wealth and business.

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