I was recently a panelist on a video podcast titled Life Insurance for High Net Worth Individuals (“HNW”) and Business Owners. A link to the podcast can be found here Here.
Simon Kay of IPS Insurance moderated the panel. Simon specializes in life insurance for HNW individuals and corporate business owners and is a pioneer in private underwriting.
Private underwriting is a more thorough process, but at its simplest, it allows people with basic health and lifestyle concerns to gather all their underwriting needs independently of any insurance company. IPS can identify any areas that may be putting upward pressure on premiums and work with the customer and their doctors to clarify or address any areas of concern. IPS can then take a stand and advocate for their client only with insurers, protecting their client’s privacy. Simon can be reached at: [email protected]
The other team member is Jay Hershfeld. Jay is a highly respected tax and estates professional with an insurance expertise (as you will no doubt agree once you watch the podcast) and is currently a director at Scotia Wealth Management. Jay has a wide range of experience from working in the Tax Policy Branch with the Federal Department of Finance, Life Insurance Company and several large financial institutions.
The title of the podcast is self-explanatory and discusses in very simple terms why you might want to consider permanent insurance as an HNW individual or corporate business owner.
Simon is editing the second podcast on some of the tough questions to ask when you’re considering getting into a life insurance policy. I will be releasing that podcast soon. If you’re considering buying a permanent life insurance policy, let me just say that, I think it’s great and worth checking out 🙂
As the podcast focuses on permanent insurance, below I provide a brief written summary of what permanent insurance is, some reasons to use it, and how permanent insurance is commonly used by HNW individuals and corporate business owners.
What is Permanent Insurance?
Unlike term insurance, which generally covers temporary needs, permanent insurance provides coverage for life and is used for long-term needs. The two most common types of permanent insurance are whole life and universal life, and most policies combine a death benefit and savings component into the policy.
Why Use Permanent Insurance?
Permanent insurance can provide liquidity and efficiency to an estate. This liquidity and efficiency, along with the ability to balance an estate, can help facilitate family reconciliation after a parent’s death.
If a company is the beneficiary of permanent insurance, the return on investment using insurance is in many cases higher than if you build your own investment or sinking fund; Because the insurance proceeds are credited to the capital dividend account (See this previous blog post on Capital Dividend Account) and can generally be paid tax-free (subject to certain tax rules discussed in the second podcast).
Benefits of Permanent Insurance?
Some of the possible uses of permanent insurance include:
1. Estate Planning – At death (usually on the last surviving spouse), the value of your estate is allocated to the CRA in some combination of taxes, your family or charity. Permanent insurance can be used to provide liquidity for estate growth/augmentation by leaving a larger estate to your family from your estate tax liability, estate equalization with your family, charitable purposes, or insurance payouts.
2. Business or partnership agreements – Permanent insurance is a very tax-efficient way to buy out a deceased shareholder or shareholder, especially for corporate shareholders, using a capital dividend account under the terms of a shareholder or shareholder agreement.
3. Inherited Assets – For HNW individuals, insuring the tax liability related to inherited assets such as residential or commercial real estate, cottages or small businesses seems somewhat intuitive because you assume that the estate may sell those assets or others. Tax liability related to legacy assets. However, in many cases, parents have expressed a desire to have their estate inherit assets after they die, either for sentimental reasons or because they feel future appreciation will be significant. Therefore, they purchase permanent insurance to cover the legacy property tax liability to mitigate the income tax burden on the property.
4. Passive Income Provisions- Permanent insurance is an income tax shelter within a policy which effectively reduces the taxable passive income for a company and therefore can reduce the small business clawback for companies.
5. Charity – You can name a charity as the beneficiary of a policy or get a death benefit from a permanent policy to a charity of your choice and your estate will get a trust tax credit on your death. You can buy or transfer a policy (which can result in a taxable deemed disposition, so talk to your accountant first) to a charity and you’ll get a tax credit on the annual premium payment.
This is my last blog post for 2022, so I wish you and your family a Merry Christmas and/or Happy Holidays and a Happy New Year.
This site provides general information on various tax issues and other matters. This information is not intended to constitute professional advice and may not be tailored to a particular individual or situation. It is written by the author in their personal capacity only and cannot be attributed to the accountancy firm with which they are affiliated. It is not intended to constitute professional advice and neither the author nor any organization associated with the author accepts any responsibility for any reliance on the information contained herein. Readers should always consult their own professional advisors regarding their particular situation. Please note that blog posts are time sensitive and subject to changes in law or legislation.