Case Study 2

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Insurance planning means addressing some difficult subjects. You don't expect to face any tragedies personally, but you realize that like everybody else something totally unforeseen can happen. So what do you do?

 

If you are a self-employed professional or business owner, your day is consumed by what you do and taking time out of your already full schedule to talk about Life Insurance is right up there with going to the dentist for a root canal; you know you should, but you don't want to until you have to. 

 

Insurance planning is an essential part of any sound financial plan and when you are self-employed it is even more important to get knowledgeable and competent advice to move forward with the proper coverage. You want to ensure that if something happens to you that your family is taken care of. You might have a Buy/Sell Agreement in place that stipulates the need for insurance. Your company may be growing and therefore your deferred tax liability is also increasing. These and many more realities make it imperative that this issue be dealt with quickly. I can't begin to tell you how many times during my career, discussions have started but before a decision is made and action taken, something has happened to change the person’s insurability, making it difficult or even impossible to get coverage.  

 

 

As a business owner, it's not just a simple matter of picking an insurance policy and signing an application. Your estate is much more complex and so these advanced advisors have access to the services of tax and estate professionals inside the insurance company who will look at your whole situation and help design a fully integrated program that allows for changes as your estate and your company both grow and mature.

 

When it comes to actually selecting which life insurance policy is appropriate, most people’s initial reaction is to want the term insurance with the least amount of premium. But is that term policy the best choice? Term policies start off cheap, but over time become the most expensive and even if you continue to pay the premiums, they are designed so that at some point they will expire before you do. Utilizing a permanent insurance policy however will often prove to be the better answer. The premiums are guaranteed and won't change. When the corporation is making profits and can invest the retained earnings, this permanent insurance policy can sheltered those retained earnings rather than have them taxed at as high as 50.3% in Ontario in some other corporate investment. As situations change in the corporation, the flexibility of the insurance can change with them. The cash value in the insurance policy can be there to help in cash flow crunches. On retirement this cash in the permanent policy can be used to fund retirement income.

 

An important point that adds to the urgency of doing the proper planning now: CRA is changing the taxation on corporate owned life insurance policies that are issued after December 31, 2016. Any policies issued prior to that date will be grandfathered under the current rules. On top of that, so many corporations are taking advantage of this timing to move ahead with the insurance programs that there is already a significant backlog of applications in underwriting. This only means that it will take longer to get a policy issued so my advice is to act now.  And remember that this is a complex planning situation, so only deal with a professional advisor with designations such as CHS, CLU and/or CFP behind their names. This assures you that you are dealing with a competent individual who has invested their time in taking the appropriate courses in order to provide proper and accurate advice. To find out what you need to do now to avoid these extra taxations, send me an email at jim.corrigan@thelivingbenefitsgroup.com.