Reducing Tax with Corporate Life Insurance

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.

Tax-Free-Growth

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.

ABOUT THE AUTHOR

ALLAN MADAN

CPA, CA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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