Taking Advantage of Life Insurance Fair Market Valuations and Professional Corporations

For years, CRA would not allow professionals like doctors, dentists, etc, utilise personal service corporations, or "professional corporations". Most professionals addressed their life insurance requirements by owning the policies personally and having named beneficiaries, usually spouses.

Life insurance proceeds were paid tax free to named beneficiaries because the insurance premiums were paid with "after tax dollars", and were not tax deductible. In the last couple years, with the allowance by CRA of professional corporations, many professionals are starting to fill their life insurance needs by having their corporations pay for and own the policies. The premiums are still not tax deductible but the tax rate of the corporation is usually at a lower rate than their personal tax rate. It requires much less cash flow to pay the required premium. The proceeds of the life insurance are still tax free and can be paid out through the capital dividend account.

Many professional who already have personal life insurance policies are wondering if and how they can move those policies and have their corporations pay for them. The short answer is yes. It must however, be done properly.

A Fair Market Valuation of the existing policy must be done by a certified actuary. The Benefit Guys can provide this valuation service for professionals. The FMV, once established, is the price at which the policy is sold and transferred to the corporation. It may be hard to believe, but even a term policy that has no cash value, often times does have a Fair Market Value. Whole life and Universal Life plans will often have a substantial FMV that exceeds the current cash values and reserves.

So whether you are looking for a new life insurance policy, increasing coverage you currently have, or are happy with your current coverage, make sure you are aware of the advantages of the policy ownership being in your corporation.

If you are one of those professionals, or know one of those professionals, contact me by phone or email and get the latest facts. Save some money, don't miss out on this easy way to maximize your cash flows. Don't put it off any longer.