Corporate Wealth Escalator Plan

The Corporate Wealth Escalator Plan uses corporately owned permanent life insurance as a means to significantly increase the value of the estate of a departing shareholder. This financial strategy illustrates how purchasing life insurance with cash surrender values can offer a greater estate value than using the same funds to purchase a taxable investment within the corporation.

Your business owner client obtains a permanent insurance contract on the life of a shareholder. Premium payments are made using surplus revenue or a reallocation of passive investments.

Since the corporation is the beneficiary of the policy, the death benefit is received tax-free upon the passing of the insured shareholder. A significant portion of this benefit creates a credit to the Capital Dividend Account (CDA), which can then be used to pay a non-taxable dividend to the deceased shareholder’s estate.

The corporate wealth escalator plan compares the allocation of surplus cash flow into an exempt life insurance policy rather than a traditional investment, thereby reducing the corporate income from passive investments each year. It provides a greater after-tax settlement to the shareholder’s estate in comparison to a taxable corporate investment. This concept is designed to illustrate this strategic advantage.

Advantages

Protection

From the time of purchase, the life insurance contract addresses the risk management need of the corporation. Furthermore, the death benefit can grow over time to provide for future corporate growth and increased coverage needs.

Tax preferred growth

The qualified life insurance policy allows the accumulation of cash values that grow tax-deferred, contrary to a typical corporate investment whose income and capital growth is subject to tax. Furthermore, the coverage provides a tax-free death benefit to the corporation, a significant amount of which can be transferred to the shareholder’s estate through a non-taxable dividend.

The example below compares the net estate value of the corporate wealth escalator and the taxable corporate investment. This example uses Participating Whole Life insurance policy with Paid-Up Additions (PUA) dividend options and premium offset after 14 years.

Reduce the tax burden of corporate investments

The tax-deferred growth of the cash value within a qualified life insurance policy does not increase the adjusted aggregate investment income (AAII) of the corporation. This is contrary to traditional corporate investments whose income is taxed annually. Furthermore, the adjusted cost base (ACB) of the life insurance policy is the only portion of the death benefit that can not flow through the CDA as a non-taxable dividend. This can greatly increase the values of the shareholder’s estate.

Portfolio diversification

Permanent life insurance provides an effective means of diversifying the investment portfolio of the corporation. Especially when Participating Whole Life insurance is utilized, asset growth is significant with smoothed returns that can bolster the efficacy of portfolio diversification.

Accessing cash values

The cash surrender value of the life insurance contract is accessible to the corporation while the insured shareholder is living. The corporation can also assign these values as collateral in order to negotiate preferred lending rates.

Applicable products

  • Guaranteed whole life insurance
  • Participating whole life insurance
    • With Paid-Up Additions (PUA) or Enhanced Insurance as the dividend options

The Corporate Wealth Escalator Plan is ideal for business owner clients who want to:

  • Increase the net value of their estate
  • Reduce and defer their taxes
  • Have the flexibility to access accumulated corporate savings when they want
  • Facilitate a share purchase at death using tax-efficient dividends
  • Reduce taxes on passive investment income

Targeted age: 45 to 65

Clients must be in good health in order to qualify for permanent life insurance.

Sales approach

Here are a few questions to ask your client:

  • Does your business have passive investments which are earmarked for long-term growth?
  • Do you wish to leave your beneficiaries a tax-efficient legacy?
  • What is your company paying for passive investment income tax? Would you like to reduce this tax bill?
  • Will your estate receive a tax-preferred buyout of your shares upon your passing?
  • Would you like to be able to access funds quickly in the event of an emergency?

To proceed with the creation of a Corporate Wealth Escalator Plan, the following characteristics must be present in the underlying product illustration:

  • The policy owner must be the corporation
  • The insured person must be a shareholder of this corporation
  • For concept illustration purposes, do not illustrate any additional riders
    • This restriction applies to the steps required to run the concept only, the illustration used may be comprised of base coverage as well as additional policy riders

Procedure to illustrate the corporate wealth escalator plan:

  1. Click the Sales Strategies tab.
  2. Open the Concepts section.
  3. Select Corporate Wealth Escalator Plan (Participating / Permanent Life Insurance) in the drop-down menu.
  4. Download the concept by clicking on Export. The data in the illustration will be transferred to a spreadsheet. You will have 60 minutes to open the spreadsheet and to access the data in the illustration. After this time, you will need to download the spreadsheet again.
  5. When the browser has finished downloading the spreadsheet, open the spreadsheet directly from the link in the browser or from your Downloads folder.
  6. When opening the spreadsheet, activate the contents and macros.
  7. Press the Start button to start he sales strategy.
  8. The following entry screen will be displayed depending upon if you’ve chosen Participating Life Insurance or Permanent Life:
  9. Or

  10. Ensure that the populated data is correct. If it is not, Quit the spreadsheet in order to correct the data in the illustration software.
  11. Confirm or modify the name of who the strategy is being prepared for.
  12. Enter Allocation and Rate of Return data for the taxable investment comparison.
  13. Confirm or modify the tax information based on the client’s province of residence.
  14. Confirm the fields and click on View the report.
  15. The Corporate Wealth Escalator concept report will appear in PDF format.
  16. A copy of the report will automatically save in the directory entitled: "\Downloads\Desjardins". You will also have an option to manually save the document.
  17. When you have finished consulting the report return to the input screen and click Quit.
  18. Only the saved PDF report can be used to view the spreadsheet results. To illustrate the concept again, please produce a new illustration and download the concept from the Sales Strategies tab.

Report example


For additional information please connect with your regional sales director.