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
- Compensate partners in a unique low-cost manner
Some specific topics follow, but, remember, they are by no means exhaustive.
Consider using life insurance as a source of funding. It can provide for the needs of the business in event of death of the business owner, key executive, or shareholder.
A key tax advantage to 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. Thus 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. It also requires simultaneous 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.
Life insurance can be an efficient means of funding the obligations under a buy/sell agreement found in a shareholder agreement.
Life insurance proceeds are paid to the corporation thereby increasing the capital dividend account. Thus 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.
Maintaining the cash surrender value inside of the policy during the insured’s lifetime means the fund value grows tax sheltered. This eliminates the requirement to send 50% of the policy’s annual earning to the Refundable Tax Account.
Contact us today to review your current insurance policy or develop a new one and let us provide streamlined, cost effective solutions that meet the needs of your business.