So as a business owner, you’ve decided to settle on a permanent life insurance policy to implement the Infinite Banking  – IBC Concept in your business. You’re into the idea of committing to a policy that can provide your business with benefits beyond the usual death benefit of a standard-term policy. That’s great news!

Whole life insurance is among the most popular types of life insurance and can be used to implement IBC in Canada. It is available in a variety of shapes and has numerous configurable choices through riders to meet the demands of you as well as your family members. Whole life insurance with a death benefit payout is often utilized in estate planning. However, there are additional advantages to whole life insurance using IBC concept.

In addition to policy dividends, corporate executives and high-net-worth persons can utilize their IBC whole life insurance policy to meet the substantial tax costs that arise when their shares of the company or estate are handed down to their loved ones.

Infinite Banking in Canada Through Corporations: What is it?

An entrepreneur can choose to obtain a personal whole life insurance coverage or a policy in the company’s name. Just like personal life insurance, corporate life insurance offers a death benefit and may also include an investing element. Nevertheless, corporation life insurance has other applications that serve to assist your company’s goals. For instance, if you urgently require cash for your corporation right now, you can utilize corporate life insurance as collateral for your loan. Based on the monetary needs of the company, you may get this insurance in the form of a term (10, 20, 30 years) or permanent (the whole life of the owner). However, for infinite banking in Canada, you need a permanent whole-life policy.

Is it legal for a corporation to acquire a life insurance policy for its employees?

A life insurance policy might be owned by a company or corporation. Corporation-owned life insurance (COLI) permits it to pay the policy’s premiums. Generally, the corporation financing the policy ought to be one of the beneficiaries of the COLI so that the premiums are not subjected to taxation. The corporation can thus collect proceeds following the death of the individual insured by the insurance plan.

What are the benefits of practicing IBC Concept in Canada through a corporation?

A corporate-owned whole life insurance policy offers various benefits:

• Life insurance premiums have a lower tax cost: Paying premiums via the company allows you to utilize the after-tax cash that the business generates. Because companies have a lower rate of tax over individual people, a corporation should possess a life insurance policy instead of a shareholder. A company can own a considerably larger policy on the shareholders for an exact number of premium dollars than if the shareholder paid for the policy with their own money. Because premiums for life insurance are paid for numerous years, throughout the insured person’s whole life (infinite banking), such savings can add up quickly.

• Premium distribution that is equitable: A corporation can pay premiums for numerous owners or key people, irrespective of the number of premiums, which may vary according to the age of the person or individual health status. As a result, every shareholder bears a proportionate share of the expense of the payments made by the corporation, as well as the potential gain from them. Instead of each shareholder needing to pay for coverage separately, this provides for a more equitable allocation of premiums.

• Management is simpler: Corporation-owned policies on numerous persons or shareholders can sometimes be readily administered administratively by the corporation, including paying a premium or using cash values, certifying the policies’ validity, and even submitting claims.

• Safeguards creditors: Policies held by a corporation on behalf of an individual shareholder often permit them to be sheltered against an individual shareholder’s creditors. Specific mechanisms could be devised such that any death benefit proceeds obtained are likewise protected against the business’s creditors.

• Growth of tax-preferred cash value: The corporation-owned permanent whole life insurance plans, have cash surrender values that are considered a business asset. Except when the insurance is redeemed or the cash values are removed, any unrealized gain in cash surrender values is tax-free. This enables the corporation to diversify the asset mix while evading taxes on normal investment income.

• The death benefit is tax-free: In the event that the insured individual passes away, the benefits of corporate-owned life insurance obtained by the corporation can be remitted via capital dividends towards the deceased’s personal estate as well as any other beneficiaries with minimal or zero taxation. The tax-free payout equals the amount of death benefit less the policy’s adjusted cost basis (ACB) during the time of death. A policy carried to life expectancy will generally result in virtually the entire or an extremely large percentage of the death benefit being eligible for dividends that are tax-free.

• Becoming Your Own Banker in Canada: By becoming your own banker in Canada, you can enhance the value of the life insurance policy you have. You don’t have to rush to banks or other money lenders when you are in need of funds immediately. In addition, this way, the individual taking the loan can repay the same to themselves only and become their own banker.

How Can the Infinite Banking IBC Concept Benefit Your Business?

If you own a business,  you could be concerned regarding how it will continue after you die. There are numerous ways in which you can take advantage of the Infinite Banking Concept(IBC) using a whole life insurance policy. Using IBC as a strategy for company continuation and to guarantee that the business stays prosperous even if ownership changes in the near future.

Key person insurance

This refers to a whole life insurance policy held and serviced by a corporation that covers the death of a major employee who is crucial to the company’s business activities. If a covered important employee dies, the company earns a tax-free death benefit that can be utilized to reimburse expenditures, pay back debts, or perhaps even recruit a successor. Key person protection is a low-cost solution to help secure the business’s continuous growth and profitability in the event of a specific danger. The benefits of life insurance may advantageously be utilized as a cushion against any potential decrease in revenue or business expansion that may ensue as the firm traverses the adjustment in its operations caused by the death of a crucial employee and/or a shareholder.

Buy/sell agreement

This refers to an agreement that specifies how owners or shareholders of a business might acquire the shares of a departed company owner or associate. A buy-sell agreement can be supported by a whole life insurance policy, with the death benefit utilized to acquire the departed partner’s outstanding shares from the successors. This arrangement avoids the business associates from needing to utilize personal finances or corporate assets to purchase the shares of the departed business associate. In rare circumstances, business associates may opt to acquire a policy that covers the other associates independently. Nevertheless, it is preferable to have the whole life insurance policy owned by the business so that it may be administered more effectively and utilized to pay for the acquisition of the departed partner’s shares.

Capital equalization

This is a strategy employed to transfer assets to single or multiple dependents of a stockholder in a balanced way. When the company owner has a few active and dormant beneficiaries in the business, a whole life insurance policy is just a useful tool for estate equalization. Family members who have a stake in the estate inherit the assets or family company, while others leave the estate an equal cash value from the tax-free benefits of whole life insurance coverage.

Life insurance collateral assignment

This is yet another advantage of having business-owned insurance. The majority of individuals focus on the whole life insurance policy death benefit, yet there are also living advantages of the life insurance policy. A whole-life policy generates cash value aside from the death benefit payout. Should you require urgent cash for business purposes, you can receive a policy loan using the cash value of the policy as collateral and thus be your own bank in Canada. There can be limitations on the amount of cash value a policy must accrue in order to borrow against it. Furthermore, if you are unable to make the loan installments and must rely on the cash value as your collateral, the loan amount as well as interest accrued may reduce the value of death benefit in your policy, this is all about Infinite Banking Concept.

What are the Risks of Practicing Infinite Banking Through a Corporation?

As previously noted, having life insurance within a corporation provides numerous benefits. On the other hand, it can also have some unforeseen negative repercussions.

If a shareholder of a corporation dies without a partner to transfer their shares to, they are presumed to have surrendered their shares in the corporation at Fair Market Value (FMV) immediately prior to their death. When calculating the shares’ FMV, the cash surrender value (CSV) of the shareholder’s whole life insurance policy is included. As a result, whenever a corporation holds a high CSV life insurance policy, the FMV of the departed shareholder’s shares is similarly high. Consequently, the deceased shareholder will have a big capital benefit on death thus, as a result, a substantial tax liability.

A unique type of share known as an insurance-tracking share can be used to prevent this tax burden. Such shares are distributed to the estate’s heirs (typically the business owner’s kid). An insurance-tracking share follows the cash value of a COLI insurance policy although it does not entitle the shareholder — often, the business owner’s child — to dividends, business proceeds, or voting rights.

Final word

The Infinite Banking Concept, using a whole life insurance policy can be used by businessmen and businesswoman as a liquid source to meet a variety of estate planning objectives.

A company owner can buy life insurance using IBC concept, for themselves or for their corporation.

A company may obtain life insurance coverage to help with estate equalization, buy-sell agreements, or key man insurance.

Although  there is also a range of additional challenges to ponder, there are numerous advantages and versatile planning options for corporate-owned life insurance using the Infinite Banking Concept and be your own bank in Canada.

The implementation of the IBC concept of the late Nelson Nash in Canada can be seen as the reflection of the “Austrian School of Economics.” Without much intervention from the government and compromising your liberty, this concept of the late Nelson Nash in Canada allows one to avoid banking products that do not fit your personal virtues.