Professional Corporations and other Owner Operator Businesses on Retirement

There is a lot of satisfaction about being incorporated in your own business, but my experience working with many professionals and business owners in Ontario and British Columbia, says there are also several common fears and worries. Top of that list: as they pass through their 50’s, they start to worry about how they will retire and where the money is going to come from to keep them in the lifestyle that they’ve become accustomed to.

When I am faced with those questions, one of the options I point out is the advantages of a life insurance policy and how it can be utilized to help as a Corporate Insured Retirement tool. When a business invests their retained earnings in GIC’s, savings accounts or managed portfolio’s, the annual taxation on the growth can be significant. But, by using a life insurance policy instead, significant funds can accumulate on a tax deferred basis while at the same time increasing the amount of the death benefit that will credit the capital dividend account (CDA) on the death of the owner. At retirement though, the policy can then be assigned to the bank, that will then “loan” money against the policy up to as much as 90% of the cash value. These loans get paid tax free to the corporation which then issues a dividend to the owner. On the owner’s death, the loan is paid off by the proceeds of the policy and the balance paid to the corporation, all tax free. But the significant benefit is that the CDA is credited the full death benefit amount, allowing it to then issue tax free Capital Dividends to the surviving shareholder(s).  

Are you interested in getting more information?  Email me at jim.corrigan@thelivingbenefitsgroup.com or call me at 905-430-7921.