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A Waste of Money or a Valuable Asset?
Successful businesses have one thing in common – they earn more money than they need to run the business. With this success, it can be beneficial for businesses to leave some of this surplus cash in their corporation. Active business income has favorable tax treatment (lower tax than personal tax rates in many cases). This can help accelerate reinvestment in the business or allow diversification of wealth within the corporation. Some investment options available within a business are:
How to determine where to invest
The best asset to own within a corporation depends on what you are looking to achieve. Some questions to ask in determining the best asset to invest in:
Once you know the answer to some of these questions, it can narrow down your investment choices to the best one for you. The investment we’ll focus on today is Whole Life Insurance. It has unique characteristics that can achieve results that aren’t available from other investments. It is also a lesser known asset compared to the others.
Corporate Owned Permanent Whole Life Insurance
For the purpose of this discussion, we will be looking at permanent whole life policies owned within a company. Whole life insurance policies have some unique characteristics compared to other investment options available for corporations:
The tax structure of the policy can be very beneficial. Some of these tax features are as follows:
The investment inside the whole life policy may be accessible prior to the death of the life insured. You will want to talk with your insurance advisor to understand some of the options available, such as policy loans, immediate financing arrangements, etc., but there are different ways to access this money without attracting taxation or losing your coverage.
The premiums are paid with after tax corporate dollars and are not deducted as an expense.
How stable are insurance companies?
If you are going to invest money in a policy backed by an insurance company, how do we know if it will pay out at some point in the future? Here are some additional little-known facts!
I have kept things simple here for conversation’s sake. I encourage every successful business owner to weigh the benefit of having a portion of their retained earnings in this corporate asset class as it is an incredible exit plan.
Because this is an insurance product, health and age are important factors in setting up a cost-effective plan. Please reach out to one of our very knowledgeable Connect Wealth advisors for more information about this unique asset class and how it may be tailored to your unique situation.
Connect Wealth is an independent financial planning firm that offers holistic advice to clients based on their current goals and future aspirations. We use well-established workflows and cutting-edge technology to maximize planning efficiencies while simplifying the process for clients. Learn how you can maximize your financial opportunities at www.connectwealth.com
Watch our August 2022 Money Minute, a new Vlog from Connect Wealth. In this video, Joey San and Dallas Clemyck discuss our August blog post and the unique characteristics of Corporate Owned Permanent Whole Life Insurance.