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Beat The Taxman

Would you knowingly choose the government as a silent partner in your company's investment income?

If you're investing your company's excess profits, you may be doing just that.

Here's the problem.

In many businesses, the retained profits or surplus cash are invested in GICs or other taxable investments. This is often the case when the owners don't need the extra income and have a higher marginal tax rate than their business. But, what many owners may not realize is that they have made the government a silent partner in their investments since the government will take approximately half of the investment income in tax.

Is this the most effective way for your corporation to invest its retained profits?

What are your options?

You can continue to pay tax on the interest earned on your company's invested profits or you can invest these profits using a permanent Life insurance policy. This attractive alternative to taxable investments is ideal for a corporation or owner who:

  • can benefit from a higher immediate estate value and
    ultimately from a higher tax-free death benefit paid to heirs
  • has retained earnings available for investment
  • can benefit from a tax-deferred investment

The Life insurance solution

This solution puts these excess profits to work in an exempt life insurance policy.

A universal or whole life insurance policy provides immediate life insurance protection and an investment within the policy that accumulates on a tax deferred basis. When you  die, the corporation receives the proceeds of the policy tax free, plus a credit to its capital dividend account (under current tax laws). Capital dividends may then be paid out to your estate tax-free. The solution, using universal or whole life insurance, allows you to move corporate investment dollars from a tax-exposed environment to a tax-deferred one, maximizing the amount that is available to your estate.

Here's an example of how this financial planning strategy uses Universal Life to provide a larger estate for your heirs.

Personal information

Male, age 45,
non-smoker

Before tax investment rate for alternative

6.00%

Universal Life rate of return

6%

 

Initial death benefit

$500,000

After tax investment rate of alternative

2.94%

Deposits

$20,000 per year
for 15 years

 

Personal dividend tax rate

Corporate tax rate

35%

51%

 

Universal Life

 

 Another  investment alternative

Accumulated
value

Before tax redemption value

Death Benefit available for CDA credit

Year

Annual interest

After tax balance

Net estate
value

19,575

4,894

580,622

1

1,800

20,588

13,590

112,678

95,776

617,097

5

6,363

109,173

74,208

276,355

276,355

755,949

10

13,719

235,367

165,501

694,824

694,824

1,136,032

20

25,685

444,670

336,202

1,246,246

1,246,246

1,882,616

30

34,318

588,783

484,876

The Life insurance strategy can increase the amount of
cash that will go to your heirs by over
$1,300,000!

For more information on how Life insurance can help you "Beat The Taxman" and grow the value of your estate contact Barrons today.

This example is for illustration purposes only, while every attempt has been made to ensure the accuracy of this information Barrons or its affiliated companies cannot be held liable for errors or omissions. Actual numbers at time of illustration may vary.