Corporately Owned Life Insurance

Personally owned, or corporately owned, that is the question, especially if you’re a business owner considering the purchase of life insurance. Life insurance is an important piece of any business and can be a tremendous asset to your business in the following ways:

  • Key Person Insurance – In the event that the loss of a key person would mean a monetary loss for the company. In this situation, the corporation is the owner and beneficiary.

  • Buy/Sell Insurance – Can be used to help settle a buy/sell agreement between two or more partners. In this instance, the corporation owns the policy on the shareholders and on the death of a partner, the corporation can redeem his or her shares. There are at least five ways to set up buy/sell insurance, which I will discuss in a later article.

  • Estate or Succession Planning – This will help fund the transfer of shares to charity, family, or other business partners. In this situation, you need to be aware of the rules regarding taxable benefits when the insured is a shareholder vs. an employee or when the beneficiary is a spouse, rather than the corporation.

  • Taxes Payable – Life insurance can be used to offset tax liabilities on death, which negates the need to sell your assets at an inopportune moment. The proceeds will then be typically deposited into the Capital Dividend Account (CDA) for further disposition to shareholders tax free.

  • Charitable Bequests – Finally, life insurance can insure that a charity will receive a designated amount of money.

(Corporate Owned Life Insurance continued…)

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