Why IRP's Work
- provides needed life insurance protection
- provides an opportunity to create cash value that grows on a tax-deferred basis
- provides security for a loan
- borrowed funds are tax-free
- insurance proceeds provide a means for repaying the loan at death
Three Building Blocks of The Corporate Insured Retirement Program
1. Life Insurance
Most business owners will agree that their corporation needs life insurance protection. This coverage may address diverse business needs such as coverage for the loss of a key person, provisions for shareholders capital gains or funding for buy-sell agreements. In addition to the life insurance protection provided by an exempt policy, significant cash values can accumulate within the policy.
Within limits set by the Income Tax Act, values in an exempt life insurance policy accumulate on a tax-deferred basis. Depending on the amount of insurance purchased, a significant value can build inside the policy and remain exempt from annual taxation.
The accumulated value in your exempt life insurance policy is a corporate asset. The value can be accessed without giving up ownership of the asset by using the policy as collateral security for a bank loan. Depending on a number of variables explained later in this guide, it is possible that the interest expense associated with this bank loan could be tax deductible.
How Does It Work?
Once you've determined the need for corporate life insurance, consider purchasing an exempt life insurance policy suited to maximize growth within the policy. Your insurance advisor can help you select the policy that best meets the particular needs and circumstances of your corporation. The purchase of this policy created the option to use it in the future as collateral security for a bank loan to the corporation or a shareholder.
In addition, all the benefits provided by the life insurance policy are available from the day the policy goes into effect. Your advisor can provide more information, including an explanation of how the values in the policy will accumulate, what the death benefit is, the structure and consequences of corporate borrowing vs. shareholder borrowing and other issues you will want to consider. This information can help you develop and effective strategy using this innovative concept.
Sometime in the future, the policy may be used as collateral for a loan from the Bank. The loan may be structured in one of two ways under the Corporate IRP concept. Either the corporation or a shareholder may borrow money from a bank using the corporate-owned life insurance policy as collateral. Tax consequences will vary depending on how the Corporate IRP is structured so, when you purchase the policy, you will need to consider which of these options best meets your needs. Loan advances generate a cash flow that may be applied in a number of ways, including supplementing retirement income, buying out a retiring shareholder or a variety of other applications depending on the structure of the Corporate IRP.
For the more information regarding this and other planning strategies, please visit www.wealthco.ca.
Money fast facts
A stack of currency one mile high would contain over 141 million notes.
Martha Washington is the only woman whose portrait has appeared on a U.S. currency note. It appeared on the face of the $1 Silver Certificate of 1886 and 1891, and the back of the $1 Silver Certificate of 1896.
95% of the notes printed each year are used to replace notes already in circulation.
A million dollars' worth of $100 bills weighs only 10 kg (22 lb).
US and European expenditure on pet food is $17 billion per year.
The global expenditure on healthcare and nutrition is $13 billion.
If your plan is to build a house, your need a blueprint and materials. The same is true for your financial plan.
Your blueprint is where you want to be in five or ten or twenty years from now. Will you be working or retired, living in the same house or somewhere else? Will your children be going to college? Will you own a different car, or a new boat? What kind of lifestyle do you want to lead? Although sometimes difficult, projecting into the future is stimulating. Visualize your goals if you want to reach them.
Feel free to call if you want more info on this month's topic or any planning or investment issue.
Increase Your Retirement Cash Flow...
...on a tax free basis
The Corporate Insured Retirement Program (IRP)provides a business planning opportunity with insurance protection plus the potential to access accumulated policy values tax-free.
Most business owners agree that their corporation needs life insurance protection. They also understand that they need liquidity - quick access to cash. What most business owners don't realize is that corporate-owned life insurance can meet both of these needs.
Many companies that purchase life insurance (forexample, to cover the loss of a key person or fund a buy-sell agreement) also have funds to invest.
Often, these funds are used to purchase investments subject to annual taxation at high corporate investment tax rates. The Corporate Insured Retirement Program is an innovative alternative. This program provides the business with permanent insurance protection, access to a tax-deferred investment vehicle and tax-free use of the investment funds. It is a planning opportunity that offers flexibility, security and liquidity.