Unlock Hidden Wealth: How Canadian Business Owners Leverage Corporately-Owned Life Insurance for Tax-Efficient Growth

Need cash for your business or lifestyle? The right  life insurance policy might be the answer.

Many business owners view insurance solely as a necessary expense. However, this only scratches the surface of insurance’s potential. The right strategy can transform your insurance from a protective measure into a powerful financial tool that actively contributes to your company’s growth and stability.

While traditional insurance protects your assets, strategically using permanent life insurance can help build your assets. How? Permanent life insurance offers access to cash value during your lifetime. Learn how Canadian businesses are strategically re-allocating money into corporately-owned life insurance policies to create tax-efficient assets.

Create Important Opportunities:

• Minimizing corporate tax during lifetime asset accumulation;
• Provide a source of accessible capital for business opportunities; Preserve business liquidity;
• Reducing personal tax at death & other estate planning benefits.

What would happen if you shifted your view of insurance from a reactive expense to a proactive financial strategy ? You unlock possibilities for wealth creation and preservation within your business.

Here’s how it works:

Tax Advantages of Business Life Insurance in Canada

Discover how savvy Canadian business owners are using corporate-owned life insurance as a powerful tool for tax-efficient wealth transfer. Insurance premiums are paid with corporate dollars that are taxed at lower rates than your personal income, which leads to greater purchasing power.  The cash value within the policy will grow tax-deferred within the corporation, without impacting passive investment income calculations. (high-five from your accountant!). And when the inevitable happens? When the insured person passes away, the corporation receives a tax-free death benefit, which can be distributed to shareholders as a tax-free capital dividend through the capital dividend account (CDA). This type of life insurance can also small businesses deduction’s offering an alternative to accumulating retained earnings. By utilizing tax-efficient corporate wealth transfer strategies, Canadian business owners can optimize their financial planning and legacy goals.

What Are The Key Tax Benefits for Corporately-Owned Life Insurance?

No annual accrual taxation on cash value growth

(for exempt policies)

Leveraging Cash Value for Business Growth: A Canadian Entrepreneur’s Secret Weapon

 As your policy builds cash value over time, it becomes a potential source of funds that you can tap into when opportunities or needs arise (remember that this growth is tax-deferred as well!). This first way is not ideal, but it is available:  you can withdraw a portion of the cash value (this may reduce your coverage and trigger taxes… which is why we don’t recommend it). OR!!

You can borrow against the policy’s cash value, potentially tax-free, without reducing your coverage. For even more flexibility, your corporation can use the policy as collateral for a loan from a third-party lender. This can be invaluable for expanding your business, managing cash flow, or handling unexpected expenses. All the while maintaining the long-term benefits of your life insurance coverage.

Collateral Loans

Tax-free advances to your corporation

Potential tax-deductible interest if used for business or property income

The Corporate Wealth Transfer Strategy: Optimizing Succession Planning with Permanent Life Insurance

This benefit is primarily for Canadian business owners that are looking to maximize their legacy. Permanent life insurance not only provides a tax-efficient way to diversify corporate assets but also significantly increases the net estate value transferred to beneficiaries. It’s an attractive option for business owners seeking to enhance their long-term financial planning and leave a lasting legacy. In other words, permanent life insurance plays a crucial role in business succession planning, ensuring a smooth transition while maximizing financial benefits for all parties involved.