Life Insurance for Professional Corporations
Usually there is a permanent need for life insurance to fund the estate plans of professionals similar to business owners of private companies. Recent budgets have adjusted the tax rates on investment income on surplus cash invested in a corporation so that the combined accumulated tax rate on investment income earned through a corporation and paid out as a taxable dividend to an individual owner of the professional corporation will be a combined accumulated rate of approximately 57% by 2019. Tax deferral is still an option but it makes sense if there is a need for permanent life insurance to transfer the surplus cash to acquire a corporate- owned permanent life insurance policy as a tax efficient way to transfer wealth earned in the corporation to your family at death. When the owner dies the death proceeds are paid into the corporation on a tax free basis at death and the proceeds of the death benefit in excess of adjusted cost basis (“ACB”) is credited to the capital dividend account (“CDA”) and paid out on a tax free basis to the Life Insurance to family shareholders.