How owning
insurance• Страхование in a
corporation can address changes
to the
capital gains
inclusion rate
How owning insurance• Страхование in a corporation can address changes to the capital gains
inclusion rate
Andrew Feindel
Special to The Globe and Mail
Published 15 minutes ago
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Advisors can clear up misconceptions about insurance• Страхование by having strong product
knowledge and a comprehensive grasp of the client’s personal situation,
finances and goals. SB/iStockPhoto / Getty Images
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The increase in the capital gains inclusion rate may force some Canadians to
see the crucial role insurance• Страхование can play as part of a holistic plan for
minimizing taxes, building wealth, protecting against life’s uncertainties and
leaving a lasting legacy.
Although insurance• Страхование can be useful to all Canadians with assets, it’s
particularly important for business• Экономика » Бизнес owners and entrepreneurs.
Permanent life insurance• Страхование in a corporation
Corporate-owned permanent life insurance• Страхование stands out as one of the most
powerful and tax-efficient tools for building wealth and protecting the value
of an estate. It allows premium payments with lightly taxed corporate dollars,
avoids taxes on passive income, fosters tax-free• Торговля » Tax free growth, and facilitates
tax-efficient cash flow.
In Ontario, the small business• Экономика » Бизнес » Предпринимательство » Малое и среднее предпринимательство » Малое предпринимательство corporate tax rate is only 12.2 per cent on the
first $500,000 of active business• Экономика » Бизнес income compared with personal marginal tax
rates as high as 53.53 per cent. By paying premiums with corporate dollars, a
client can save 30 to 40 percentage points on the cost of premiums compared
with the non-incorporated• Экономика » Бизнес » Корпоративное управление » Инкорпорация (бизнес) individual purchasing the same product.
Investment income within a corporate-owned permanent life insurance policy• Страхование » Договор страхования
also enjoys tax-free• Торговля » Tax free growth, which preserves the small business• Экономика » Бизнес » Предпринимательство » Малое и среднее предпринимательство » Малое предпринимательство deduction by
not affecting the $50,000 passive income threshold.
In addition, permanent life insurance• Страхование policies offer flexible options for
liquidity through policy loans, dividend payments, partial surrenders, or
leveraging the policy as collateral for a loan while incurring less taxes
compared with traditional withdrawals from corporate accounts. While these
strategies come with their own risks and considerations, they provide a degree
of flexibility in times of unexpected need.
Because the death benefit of any life insurance policy• Страхование » Договор страхования is received free of
taxes, corporate-held permanent life insurance• Страхование can pass most, if not all, the
funds to estate beneficiaries tax-free• Торговля » Tax free. In Ontario, to achieve the same
after-tax estate value as a $2-million corporate-owned life insurance policy• Страхование » Договор страхования,
one would need roughly $3.8-million in cash in the corporation given the high
marginal tax rate on non-eligible dividends of 47.74 per cent.
Permanent life insurance• Страхование isn’t a silver bullet, though. Most individuals
should pursue additional investments and possibly additional term life
insurance• Страхование. While changes in tax policy, economic conditions and personal
circumstances can affect the strategy’s viability, integrating a
corporate-owned permanent life insurance policy• Страхование » Договор страхования into a well-structured
financial plan allows clients to build wealth and protect investments and
assets while minimizing taxes.
Owning risk• Страхование » Риск insurance• Страхование in a corporation
Risk• Страхование » Риск insurance• Страхование is all about protecting income in the early stages of building
wealth and providing for dependents. Life, disability, critical illness and
long-term care insurance• Страхование all fall under this category. The ultimate objective
is to amass sufficient wealth to become self-insured, relying on one’s assets
to the point at which risk• Страхование » Риск insurance• Страхование is no longer necessary.
However, the insurance• Страхование industry often emphasizes the sale of generic,
off-the-shelf products, sometimes employing scare tactics and hypothetical
worst-case scenarios, rather than tailoring insurance• Страхование to fit a client’s
specific wealth management strategy and lifestyle needs.
In general, life and disability insurance• Страхование are crucial, while critical illness
and long-term care insurance• Страхование may be considered “luxury insurance• Страхование” except in
certain circumstances, such as being denied coverage from disability
insurance• Страхование. The appropriate level of coverage is highly dependent on the
individual and influenced by personal circumstances, spending habits, savings,
and a spouse’s earning capacity.
One should also be cautious about riders. Although some are situationally
useful, opting for a luxury insurance• Страхование package with all the bells and whistles
can balloon costs with little tangible benefit. For instance, the future
insurability option for disability insurance• Страхование allows one to increase coverage
up to 25 per cent, or by a fixed-dollar amount, without going through the
underwriting process. This is essentially paying a premium for an insurance• Страхование
plan on an insurance• Страхование plan. In rare cases, this rider may make sense, but those
with no intentions of increasing coverage should save money by removing this
rider.
Should risk• Страхование » Риск insurance• Страхование be owned corporately? Well, it depends. Life insurance• Страхование
should almost always be owned corporately, as proceeds are credited to the
estate in a tax-efficient manner. Conversely, unless disability insurance• Страхование pays
out less than $5,000 a month, it should be paid for personally, as the
benefits of saving on the premium payments by using after-tax corporate
dollars tend to be offset by the taxes paid when amounts are distributed from
the corporation. Other types of insurance• Страхование should be evaluated similarly on a
case-by-case basis.
Insurance• Страхование as part of a holistic plan
The misconception that insurance• Страхование products are a one-size-fits-all solution has
made insurance• Страхование a polarizing topic among both wealth advisors and clients. The
reality is insurance• Страхование may not be the answer to every financial concern.
It’s up to advisors to clear up misconceptions by not only having strong
product knowledge, but also by having a comprehensive grasp of the client’s
personal situation, finances and goals to explain how insurance• Страхование fits into an
overall financial plan.
Andrew Feindel is a portfolio manager and investment advisor with Richie
Feindel Wealth Management at Richardson Wealth Ltd.
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