Life Insurance is a great thing to have. Especially from a tax perspective. When you personally purchase a life insurance policy, and you die, your beneficiaries receive the amount of the policy and it is a tax-free receipt of cash to them.
Certain policies purchased provide beneficiaries with sufficient cash to fund tax liabilities that you may leave behind in your estate (if your estate doesn’t have enough liquid cash to pay for the tax). This way, the family home doesn’t have to be sold just because you’ve passed away.
Life insurance can also be purchased by a company. If you own your own business, having your company purchase life insurance may be an advantageous tax planning strategy. The benefits of the company purchasing the life insurance on your behalf is that the premiums are paid with the company’s money and not your personal money, which makes it less expensive for you since it is being paid with pre-tax dollars, although an add back for the premiums is typically required when calculating taxable income. The proceeds of the life insurance could be received by the company on a tax-free basis and may be distributed to your beneficiaries on a tax-free basis through the corporation’s Capital Dividend Account. The proceeds may also be used to pay for any existing liabilities in the company that need to be settled subsequent to death.
There may be some other benefits as well, depending on the type of life insurance policy as this is a discussion that would be best to have with an Insurance Specialist.
If you have any questions, please reach out to us at [email protected].