Working with business owners

Insurance can provide business owners with superior tax-efficient solutions over alternate investments.

Insurance can provide business owners with superior tax-efficient solutions over alternate investments.

Here, you will find simple explanations of complex strategies.

Business owners often employ a comprehensive team of professionals to manage their complex interests. However, they often overlook the benefits that insurance can offer.

Permanent life insurance can provide an opportunity to help incorporated business owners:

1. Minimize their corporate tax during lifetime asset accumulation

2. Minimize their tax at death through the capital dividend account (CDA):

  • Every business owner must know about the CDA. Accountants do and as advisors, we must become familiar with how the CDA is calculated: death benefit less the adjusted cost basis (ACB).
  • A certain number of years may have to pass before the death benefit can be fully paid out via the CDA account, as the ACB grinds down to 0.

3. Preserve and improve liquidity for their business

  • Certain insurance products provide a high degree of stability and include a variety of investment options. Let your business-owner clients know that there are options to grow their business by using the policy as collateral for a loan. This in turn may help provide the liquidity that many business owners seek.

Sun Life provides you with a wealth of resources to guide you in your discussions with business owners and their centres of influence. Use the strategies, concepts, and guides from the Resources page to demonstrate the benefits insurance can offer.

What happens when clients have liabilities they need to cover in the event of death? The immediate reaction tends to focus on finding the cheapest way of securing that protection. They may see covering the liability with insurance as another expense that reduces cash flow or retained earnings, which could have been used to support business growth. Basically, their goal is to minimize expenses to help cover the need. In this case, term insurance can be the obvious choice, especially when the liability is short term in nature.

Let’s look at another value-add solution. One that helps ensure the business owner is truly informed about their options that go beyond simple term insurance.

Permanent insurance costs more than term insurance. By demonstrating how the sale of permanent insurance bolsters the balance sheet, advisors can help clients see the value in the higher cost.

Let’s look at an example of the balance sheet impact of a hypothetical lower premium term policy vs. a higher premium participating whole life insurance product with early cash surrender value (CSV) (Quick Pay Permanent) over the first 20 years*:

Accountants understand net negative income flows. Advisors may not be familiar with this terminology, because only positive income flows are typically looked at as income. Advisors must know that while a policy earns income (i.e. money that is tax sheltered within the policy), at a certain point, policy premium(s) paid may be less than policy growth. At that point, the policy is making money and the overall effect is positive income that’s not taxable.

Permanent insurance can help cover the business owner for their entire life. And unlike term insurance, it includes the potential for a cash accumulation fund. Investments in the fund are tax-preferred, including at death when the tax-free death benefit is paid out to a named beneficiary.

An additional benefit of permanent life insurance is that allocating funds in a corporation away from taxable investments to a permanent life insurance policy can help reduce overall annual taxable investment income.

For beneficiaries:

  • At the death of the insured person, the tax-free death benefit is paid to the designated corporate beneficiary. And this amount, less the policy’s adjusted cost basis, can be credited to the corporation’s capital dividend account (CDA).1
  • The CDA helps provide a tax-efficient method of moving money out of the corporation to the estate or shareholders. Any portion of the death benefit that exceeds the CDA credit (and other CDA room) can be paid out of the corporation as a taxable dividend.

In the above scenario, the full death benefit can pass through the CDA in 34 years. Before the 34th year, at least 70% of the death benefit will be available to the CDA with the excess treated as other assets.

1 For this to happen, the corporation is both the owner and the beneficiary of the policy.

Working with centres of influence is a great way to connect with business owners and help them see the value of corporate-owned permanent life insurance.

Corporate-owned permanent life insurance is a great tool for business owners. And to unlock its potential, they often turn to accounting professionals.

But there’s a problem. There are no clear guidelines in Canada on accounting for corporate-owned insurance. Accountants often turn to insurance professionals for answers.

Booking the Insurance Transaction is a new resource that provides much-needed guidelines to accountants dealing with corporate policies. This is the first resource of its kind in Canada. It helps you connect with Chartered Professional Accountants (CPAs) and offer them an accounting framework to yield the full benefits of a permanent life insurance policy for Clients.

Download the PDF

Booking the Insurance Transaction contains best practice guidelines for:

  • Recording payments and policy value
  • Skipping premium payments
  • Partial policy surrender
  • Receiving of the death benefit and paying it to shareholders
  • Using a policy’s cash surrender value to access liquidity

It’s a great resource for accountants and business owners. And a great opportunity for you.

Articles and whitepapers:


Speak to a sales representative for information.

  • Bolstering the balance sheet
  • Partnering with the COI
  • Life insurance as an asset class
  • Strategies:
    • Corporate Asset Transfer (CAT)
    • Corporate Investment Strategy (CIS)
    • Corporate Retirement Strategy (CRS)
    • Immediate Financing arrangements (IFA):
      • To leverage or not to leverage (an overview of IFAs)
      • IFA full training course (6 hour program)
  • The corporate conversation (an introduction to working with business owners)
  • Rethink:
    • Enhancing the credit to a corporation’s CDA
    • Reduce passive income, reduce taxes
  • Product:
    • Two options are better than one (comparing Par and UL)
    • Sun Permanent Life
    • Sun UL Pro (an intro to the UL product built for business owners)
    • Participating life insurance (Par):
      • Par – simply put (a brief intro to Par insurance)
      • Par dividends and Par portfolio (am intro to how Par dividends)
      • A deep dive on Par (a more in depth look at Par dividends)

Excel tools and software:

Speak to a sales representative for information.

Client-facing videos