Avoiding The Storm – Business Life Insurance

Life Insurance for Canadian Business Owners in 2024

The Federal Government’s increase to the capital gains inclusion rate in 2024 has left Canadian business owners searching for cost-effective solutions within the insurance industry. Life insurance, particularly permanent life insurance held within a corporation, can be a valuable component of a holistic financial plan aimed at minimizing taxes, building wealth, protecting against life’s uncertainties, and leaving a lasting legacy.

Benefits of Corporate-Owned Permanent Life Insurance
– Tax Efficiency: Premiums are paid with lightly taxed corporate dollars, reducing the tax burden on passive income. This allows for tax-free growth and facilitates tax-efficient cash flow. In Ontario, where the small business corporate tax rate is 12.2% on the first $500,000 of active business income, compared to personal marginal tax rates as high as 53.53%, the savings can be significant. Business owners can save 30% to 40% on premium costs compared to non-corporate individuals.

– Preservation of Small Business Deduction: Investment income within a corporate-owned permanent life insurance policy grows tax-free, preserving the small business deduction by not impacting the $50,000 passive income threshold.

– Liquidity Options: Permanent life insurance policies offer flexible options for accessing funds, including policy loans, dividend payments, and partial surrenders. Leveraging the policy as collateral for a loan can also be a tax-efficient strategy 

– Tax-Free Death Benefit: The death benefit of a life insurance policy is received tax-free. Corporate-held permanent life insurance allows for the tax-efficient transfer of wealth to estate beneficiaries.
Key Considerations
It’s important to remember that permanent life insurance isn’t a one-size-fits-all solution and typically works best alongside other investment strategies and potentially term life insurance. The effectiveness of this strategy can also be influenced by external factors like changes in tax policy, economic conditions, and personal circumstances.

However, when integrated into a well-structured financial plan, a corporate-owned permanent life insurance policy can be a powerful tool for Canadian business owners. It allows them to build wealth, protect their investments and assets, minimize taxes, and provide for their loved ones after they’re gone.