There are a number of mechanisms available for individuals to save in a tax-efficient manner for their retirement – from employer-sponsored pension plans to government plans, RRSPs (registered retirement savings plan) or TFSAs (tax free savings account). But, for business owners, retirement benefits can be tied into their business, therefore the corporate insured retirement program can be an effective strategy for business owners/sharholders to receive retirement benefits through their corporately owned permanent life insurance policy.
Who is the corporate insured retirement program best suited to?
Shareholders that have corporate funds to invest.
Shareholders at least fifteen years away from retirement so they can accumulate enough funds inside their life insurance policy for collateralization.
Shareholders with a need for permanent life insurance protection.
Shareholders who want to supplement retirement income.
Shareholders that are comfortable with the concept of borrowing.
How does the corporate insured retirement program work?
This program works with the concept of collateralization in the following way:
Corporation takes out a universal life (or eligible whole life) insurance policy and subsequently makes sizable cash deposits into it. These deposits grow within the policy on a tax-sheltered basis providing that the funds remain in the policy and are within the maximum allowable limit.
Upon the retirement of the shareholder, the funds within the policy may be used as collateral in order to take out a loan.
This loan can provide valuable cash for the shareholder, in order to purchase an annuity or to use as income, via a series of short loans.
When the shareholder dies, the insurance proceeds generate a credit to the corporation’s Capital Dividend Account, the loan is repaid, and the remaining balance can be distributed among their beneficiaries.
Are there any pitfalls associated with the program?
As with all investment strategies, there are some risks. Namely, in this case, the fact that the program involves incurring a debt, borrowing funds and interest rate changes means that investors need to be comfortable with the unlikely but possible fact that the bank calls the loan or that changes in tax rules negatively impact them.
The corporate insured retirement program can be smart way for business owners to maximize their retirement income in a tax effective manner. Contact us today to learn more about this opportunity and allow us to work in partnership with you to understand your unique needs and requirements and create a retirement strategy that works for you.
Ong Financial Planning Services Ltd.
John Ong, CFP, CHS, CPCA, CCS
Tel: (604) 676-1088
1275 West 6th Avenue 3rd floor
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John has been providing financial planning advice for over 15 years. John is currently licensed as a life insurance agent, accident & sickness agent, mutual funds representative*, Financial Planner, Certified Health Insurance Specialist, and Certified Professional Consultant on Aging. He specializes in personal financial planning advice with an emphasis on risk management, estate & retirement planning.