Business owners looking to save tax, and protect their assets should read this. In this article, I will briefly explain how a corporate life insurance policy can be used to reduce taxes and creditor proof assets.
Tax-Free Death Benefit
The primary reason for purchasing life insurance is to provide for your family when you pass away. When a corporation owns a life insurance policy, the insurer will pay the death benefit directly to the corporation. The money received can then be paid to your estate as a tax-free dividend through the corporation’s Capital Dividend Accountant. Your estate will then distribute the proceeds to each beneficiary.
Under the Income Tax Act, investments in stocks, bonds and mutual funds can enjoy tax-free growth within a universal life insurance policy. In fact, a portion of the insurance premiums paid by your company is directly invested in marketable securities inside the insurance policy.
Cheaper Corporate Dollars
To save tax your corporation should pay life insurance premiums instead of you. If you pay for the premiums yourself, then you have to do so from your personal after-earnings, which is not tax efficient.
Creditor Proofing Assets
Your company’s creditors cannot touch corporate savings inside a life insurance policy. This is a great way to protect your company’s assets from creditors.
So here’s the tip: Consider purchasing a life insurance policy through your corporation to save tax and protect assets. For more tips, have a look at this article on legal ways to reduce business taxes in Canada.
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.