There are many ways that businesses can use life insurance to enhance their organizations. Your company may utilize life insurance to protect itself against the loss of important executives, attract and retain high quality employees, and even compensate partners in a unique low-cost manner.
Some specific topics include:
Succession Planning – Consider using life insurance as a source of funding to provide for the needs of the business upon the death of the business owner, a key executive, or shareholder. Key tax advantages in using life insurance proceeds to fund succession is the payment of proceeds to the corporation on a tax-free basis.
As a result, the proceeds of the life insurance (over the adjusted cost base of the policy) will increase the capital dividend account of the corporation thereby allowing for the payment of tax-free capital dividends to the shareholders of the corporation or to the estate of the deceased shareholder.
Key Person Considerations – The prospect of the death of a proprietor, partner, or a key working stockholder requires a plan for the disposition of his or her business interest and simultaneously protection of the financial well being of the remaining involved parties. Properly designed life insurance strategies can provide tax free funding to reduce financial issues to a minimum.
Buy/Sell Arrangements – Life insurance can also be an efficient means of funding the obligations under a buy/sell agreement found in a shareholder agreement. The life insurance proceeds would be paid to the corporation thereby increasing the capital dividend account allowing for tax-free capital dividends to be available for purchase by the surviving shareholders from the deceased shareholder.
Retirement Compensation Arrangements – Using an exempt UL life insurance policy to fund an RCA is an effective way to reduce costs. Because the fund value grows tax sheltered (as long as the cash surrender value is maintained inside of the policy during the insured’s lifetime), the requirement to have to send 50% of the policy’s annual earning to the Refundable Tax Account is eliminated.
Contact us today to review your current insurance policy or develop a new one and let us provide streamlined, cost effective solutions that will meet the needs of your business.