Leveraging Corporate-ownedLife Insurance
Discover the strategic advantages, tax benefits, and funding options of corporately owned life insurance. Protect your business interests and family while maximizing growth and tax efficiency. Explore the possibilities and make informed decisions with our expert guidance. Contact us for tailored advice today.
Corporate-Owned Life Insurance
A Strategic Asset for Business Owners
Protecting Your Interests
Corporate Ownership Pros and Cons
Understanding the Role of Corporately Owned Life Insurance
Corporately owned life insurance isn’t just a policy—it’s a strategic tool for:
- Key person insurance
- Business loan protection
- Buy-sell agreement funding
- Charitable contributions
- Capital gains tax funding at death
- Executive compensation plans
- Retirement funding
- Estate tax and equalization
- Tax-sheltered wealth growth
Tax-Deferred Growth
Corporate-owned, tax-exempt life insurance allows for tax-deferred investment growth.
Funding Choice
While life insurance premiums are not tax-deductible, they are paid with after-tax dollars. Business owners should consider the most tax-efficient funding method:
- Dividend payments to the owner, who then pays the premium personally.
- Increased salary to the owner, who then pays the premium personally.
- Direct premium payment by the corporation, with the corporation as the policyholder.
The third option is often the most tax-efficient, benefiting from generally lower corporate tax rates.
Accessing Cash Value
Corporately owned policies offer flexible options for accessing cash value, useful for personal or business needs. These include partial or full withdrawal, policy loans, or using the policy as collateral for a loan.
Death Benefits and Beneficiary Designations
It’s advisable for the corporation to be the policy beneficiary. The death benefit increases the corporation’s Capital Dividend Account (CDA), allowing for tax-free capital dividends to shareholders.
Other Considerations
- The policy’s cash surrender value impacts the corporation’s balance sheet.
- Transferring a personal policy to a corporation is a taxable event.
Conclusion
Corporately owned, tax-exempt life insurance offers significant tax benefits for business owners. However, it’s essential to understand all aspects before proceeding. Contact us for more information and tailored advice.
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