As you consider your life insurance needs there are few items to consider in selecting the right policy for you
- Should your life insurance policy be held personally or inside your professional corporation? There are a few key benefits to holding the policy/beneficiary inside the professional corporation to consider. The cost to fund the premiums will be lower if paid within the corporation than personally as you will be using before-tax vs. after-tax funds.
|
Corporation |
Personally |
|
Cost to fund the premiums |
It is funded by the individual with after-tax funds |
|
Generally, proceeds can be paid out tax free to shareholders by paying a capital dividend |
Proceeds are tax free |
- Another key consideration, is the type of life insurance you use term or permanent?
|
Type |
Term |
Permanent |
|
Coverage period |
Fixed term (i.e. 5, 10 or 20 years) |
Guaranteed for life |
|
Forms |
Term |
Whole, participating and universal |
|
Cost |
Relatively inexpensive |
More expensive |
|
Benefit |
Stay the same |
|
When considering the type of insurance, you will also want to consider the new benefit that has arisen for some permanent insurance policies. This new benefit has arisen as a result of changes to tax legislation in 2018 that limits the amount of income that qualifies for the small business deduction in corporations earning investment income. As a result of the new rules some medical professional corporations lose some of the tax deferral they have become accustomed to. These rules can however be avoided where the appropriate permanent insurance policy is put in place allowing income to grow tax deferred within the policy.
Give us a call or come in and see us and we can discuss the most cost advantageous strategy based on your insurance and cash flow needs.
