Gabriel Lalonde
March 30th, 2022

Important Considerations Before Buying Corporate Insurance

Corporate-owned insurance can benefit businesses in different ways. For instance, corporate life insurance can be valuable in certain situations, making it an important asset to have. However, despite its many benefits, corporate insurance is not perfect. This article discusses a few caveats you should know.

Get the beneficiary right.

Choosing the right beneficiary is crucial in corporate insurance. For a corporate ‘asset’ funded by corporate dollars, you cannot afford to get it wrong with choosing a beneficiary. For example, a spouse shouldn’t be a beneficiary in a policy owned and funded by a corporation. If and when this happens, the Canada Revenue Agency (CRA) would assess a taxable shareholder benefit, which could be a major blow.

Suppose you are wondering what a taxable shareholder benefit is. In that case, it is a fair market value benefit assessed by the CRA for the personal use of a corporate-owned asset without paying for the benefit.

Ensure adequate creditor protection.

Undoubtedly, corporate-owned insurance has a great potential to meet many corporate needs. But it can also weaken your policy, making it vulnerable to your creditors. That is why Ottawa Certified Financial Planners recommend additional planning, where the operating company is designated as the beneficiary and another company, the owner.

This complicated arrangement may not work in some circumstances. In such cases, only personally-owned life insurance can meet the creditor protection needs.

Proper planning is key.

A few things about corporate-owned life insurance are not straightforward, including the purchasing process. But having an Ottawa CFP in the picture can be very helpful. These experts have the knowledge and expertise to guide you properly and help you develop a detailed plan.

Your advisor can help you navigate crucial issues, including:

  • Ensuring that your shareholder agreement accurately reflects the insurance strategy you’ve chosen;
  • Leveraging your policy to create tax-free income when you retire;
  • Ensuring your corporate-owned insurance doesn’t stop you from claiming the qualified small business corporation exemption;
  • Seamless flow of funds to meet your estate planning objectives on your demise.

See beyond the moment.

Futuristic plans are essential when it comes to corporate life insurance. You want your plans to include the big picture. For instance, what if the corporation is sold in the future? Questions like this help you prepare better. In the case of a sale and the policy is transferred to a shareholder from the corporation, there will be a disposition and a potential tax liability to the corporation.

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About Gabriel Lalonde, CFP, CFEI, B.A.

When Gabriel is not crunching numbers, you can find him accompanied by his beautiful wife Ana and son Théo, either on the golf course in the summer or the ski slopes in the winter. His dream has always been to take over the family business as he saw first hand how much impact his father had on shaping peoples lives and creating long lasting legacies. Gabriel has a true passion for financial literacy and he believes everyone should have access to solid financial education.

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