Safeguard Your Business Legacy

Consider a business-owned life insurance policy if you're a business owner who owes money or has seen significant growth in the value of your business. By securing this type of coverage, you can ensure that your assets are protected and that the remaining shareholders and/or beneficiaries aren't left with financial burdens in the event of your passing.

A unique benefit of business-owned life insurance – when structured correctly – is that it pays out tax-free to the corporation upon the insured's death. This creates a notional account called the capital dividend account, which allows most of the benefit to be paid tax-free to surviving shareholders. Business owners should carefully consider this feature to protect their loved ones and business partners while minimizing their tax liabilities.

Take Ted, for example. He's in his mid-60s and owns a building that his operating company leases. He recently sold his operating company, which created a capital gain and tax. However, with proper structuring of shareholders, he took advantage of the capital gain exemption and sheltered most gains from taxation. He plans to keep the building indefinitely, for which he paid $2 million 20 years ago; it's now worth $20 million.

If Ted died last night, there would be an $18 million capital gain on the building; current rules say half is taxable. This means his survivors will receive approx a $4.5 million tax bill. But not sale = no cash. With a permanent life insurance policy for $5 million, the beneficiaries can pay the taxes due on Ted's death with the tax-free life insurance proceeds.

If you're a business owner in Canada, it's important to consider all your options. Work with a knowledgeable and experienced financial advisor to develop a comprehensive strategy that considers your unique needs and goals. Tune Financial can help you explore the benefits of business-owned life insurance and other strategies for protecting your business and personal assets. Book a consult here.