BUSINESS PLANNING AND PROTECTION

Did you know that life insurance can be purchased and used by your corporation to pay off corporate debt, buy out shareholders and increase operating capital. Having a corporation own and be the beneficiary of a life insurance policy, allows the corporation to pay the premiums for that policy and have the corporation collect the proceeds upon the death of the covered person.

When is corporately owned plans beneficial:

• Loan protection

• Key person protection

• Buy-sell agreements

While the premiums are not tax deductible, a corporate owned policy allows the plan to be paid for using the corporate tax rate which is lower than the individual tax rate. This option could offer significant savings for the corporate owner. For example a yearly premium of $6000 paid by someone with a 50% marginal tax rate, means that they will actually have an outlay of $12,000 after tax. If on the other hand, the corporation is paying for the plan using a corporate tax rate of 15%, this will amount to an outlay of $7059 after tax. An annual saving is $4941. Over the short term or over 5 years this constitutes to a saving of $24705, and even more considerable savings over a longer period of time.

There are several different ways that insurance can used as a financial and estate planning tool by business owners, it is important to discuss with your advisor how this type of plan will work for your business.