Tax Ben­e­fits for Trans­fer­ring Your Life In­surance Pol­icy

Richmond Hill Post - - Life -

Most busi­ness own­ers have life in­surance, which may be owned, and paid for, by ei­ther their com­pany or them­selves per­son­ally. If they own it, tax ben­e­fits may be avail­able by trans­fer­ring the own­er­ship of the pol­icy to their com­pany. At the same time, there is lit­tle or no re­duc­tion in the af­ter-tax death ben­e­fits for the fam­ily.

Why sell the pol­icy to your com­pany? The first ben­e­fit is it takes lass pre-tax in­come to pay the pre­mi­ums, which low­ers your cost. A sec­ond ben­e­fit is the abil­ity to strip funds equal to the fair mar­ket value of the pol­icy form the com­pany on a non-tax­able ba­sis.

How is the fair mar­ket value cal­cu­lated? An ac­tu­ary cal­cu­lates the fair mar­ket value of the pol­icy based on the cur­rent health of the in­sured(s) and the fea­tures of the pol­icy. The pol­icy's death ben­e­fit, cash value and pre­mi­ums re­quired to main­tain cov­er­age are all con­sid­ered. The process is sim­i­lar to how the pre­mi­ums were de­ter­mined in the first place, and also how com­muted val­ues of a pen­sion in­come are cal­cu­lated.

Not all poli­cies have a fair mar­ket value that ex­ceeds its cash value. Gen­er­ally, any pol­icy has a value where the in­sured would now be rated or de­clined for new in­surance. If the in­sured re­mains healthy and able to ob­tain new in­surance with­out a rat­ing, then the terms of the pol­icy dic­tate whether or not it has a value. Term-to-100 or univer­sal life poli­cies with a level in­surance costs will have a value. Such value will be higher the older the pol­icy. Reg­u­lar term in­surance does not have a value un­less the health of the in­sured has changed.

Who should con­sider the trans­fer? The po­ten­tial tax ben­e­fits ex­ist for any­one who owns a pri­vate com­pany and also owns an ex­ist­ing life in­surance pol­icy (or their trust, spouse, par­ent or child owns a pol­icy).

Jaymie Bon­gard

Jaymie Bon­gard - In­de­pen­dent Fi­nan­cial Con­cepts Group 41 6-486-3989 x225; jbon­[email protected] 20 Holly St., Ste. 207 Toronto 1 7 00 Langstaff Rd., Ste. 1 001 Con­cord

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