The CIRP is designed for a specific context, where an owner or principal shareholder of a private corporation is looking for additional retirement income.
- The corporation is well-established and has significant taxable investments, and its income is higher than its operational costs.
- The corporation has taxable investments that can generate high passive income.
- The owner is confident that the corporation will continue to prosper and is looking to increase their retirement income in a tax-efficient way.
- The financial needs analysis reveals a significant life insurance need in order to protect the corporation in the event of the shareholder's death.
- The shareholder is in good health and eligible for permanent life insurance.
- The shareholder is generally age 30 to 55 and is still years away from retirement.
Eligible products
The CIRP is a flexible financial planning method that uses permanent life insurance to provide 3 essential benefits to business owners or shareholders:
- The insurance amount is not taxable in the event of death and provides liquidity to help cover some of the corporation's operating costs, ensure that payments are made to creditors and suppliers, and fund a buy-sell agreement.
- The corporation's taxes are reduced when it reallocates its investments into the permanent life insurance premiums.
- Policy cash values accumulated can be used while the insured is alive for business or investment purposes, including to increase their retirement income whether they're an owner or shareholder.
Our collateral financing agreements were specially designed for our guaranteed whole life, universal life and participating whole life insurance products, which all have cash values. Since the insurance amount on universal and participating whole life policies offers significant growth opportunities over time, these products are the best suited to clients' long-term needs.
Permanent life insurance
- Whole Life Guaranteed (10 Pay, 15 Pay, 20 Pay, to 65 or to 100)
Hybrid products Life with Critical Illness Advance and Life with Long-Term Care Advance are not eligible.
Participating whole life insurance
- 5 Pay PAR
- Accelerated Growth (10 Pay, 20 Pay or to 100)
- Estate Enhancer (10 Pay, 20 Pay or to 100)
Dividend option
- Paid-up additions (PUAs)
With or without premium offset (except for 5 Pay PAR) - Enhanced insurance
Premium offset accepted where available.
Universal life insurance
- Term 10, Term 20, Term to 100
The universal life insurance accumulation fund must be sufficient to eventually qualify for a loan.
Types of eligible coverage
- Individual
- Joint first-to-die
- Joint last-to-die
- Joint last-to-die, paid-up first death
Benefits
There are many benefits to choosing life insurance through the CIRP strategy:
- It provides immediate liquidity to the corporation to meet financial obligations that arise when the shareholder dies. The amount payable upon death can grow significantly on a tax-efficient basis, providing permanent protection for the corporation.
- The policy's cash values increase with a tax deferral as long as it remains in the policy.
- The policy's cash values can be used during the shareholder's lifetime in a variety of ways, according to the corporation 's needs.
- It helps diversify the corporation's investments.
- The corporation's passive income can be reduced each year by using money available in the corporation's taxable investments to pay the insurance premiums. This can reduce the amount of taxes paid by the corporation during the shareholder's lifetime.
- Upon death, only the policy's cash value contributes to the corporation’s share value. This can reduce the capital gains tax payable on the value of the shareholder's shares.
- The corporation can access the cash value accumulated in the life insurance policy through other means, such as a policy loan or a partial withdrawal on the cash surrender value or total surrender of the policy. When the policyowner withdraws the cash surrender value, taxable income can be declared in the same year*.
- The CIRP strategy allows for the cash value to be used to secure a loan with no tax implications, unlike conventional methods to access cash value.
- Taking out a loan with insurance as collateral does not qualify as a contractual provision. The CIRP strategy allows for liquidity, up to a certain percentage of the policy's cash value, without tax implications.
- Note that this benefit applies provided the lending institution does not call in the line of credit or loan during the insured's lifetime. If the creditor calls in the loan before the insured's death, the consequences could be catastrophic.
*The policyowner should check with their tax advisor, as the tax implications of the different uses of corporation-owned life insurance during the insured's lifetime can vary.
Use the CIRP strategy to get your clients additional retirement income and leave them a tax-efficient inheritance thanks to permanent life insurance!