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INSURED RETIREMENT PLANS BC
An insured retirement plan (IRP) checks a few important boxes of for a business owner. This strategy covers risk management, tax efficiency, retirement income and estate planning. Statistics show that up to 80 percent of business owners have put their assets in the business. This can present a significant problem when it comes time for the owner to retire. An IRP can help manage risk, accumulate retirement and increase estate assets.
WHAT IS A CORPORATE INSURED RETIREMENT PROGRAM?
A corporate IRP refers to a strategy where a corporation purchases a life insurance policy. The policy will help manage the financial risk of premature departure and grow cash values over time that create a retirement income for a shareholder.
Once the policy is ‘paid up’, the cash value can be used a collateral for line of credit that will not be paid back until the death benefit is paid to the company.
The majority of IRP’s use a limited pay (8yrs, 10yrs, 20yrs) whole life insurance policy with a dividends that buy additional ‘paid up’ coverage. The corporation is the owner, payor and beneficiary of the policy. Non deductible corporate dollars are used for the premiums.
BUSINESS LEADERS CHOOSE IRP?
Earnings from passive investments inside a corporation affect the small business tax rate on the first 500K of small business income and also attracts the top marginal tax rate on passive income. Moving excess corporate funds into cash value life policies helps preserve the small business tax rate and growing values are not taxable while the funds remain in the policy.
When the shareholder retires, the policy is used as collateral for a line of credit to supplement retirement income and provide a monthly or annual pension plan. This line of credit is paid back from the eventual death benefit of the policy.
The death benefit is paid to the corporation in a lump sum – less any loans taken against the policy values. The company can then distribute an amount equal to the life insurance benefit amount on a tax free basis through the capital dividend account.
Corporate dollars are used to fund the insurance policy and tax free dollars come out. Risk management and tax benefits for the corporation. Retirement planning and estate benefits for the shareholder.
WHY ARE YOU IN BUSINESS?
Eventually you will exit your business. It may be at the time of your choosing or the time might be chosen for you. Too often a business owner prioritizes everyone else before themselves and their family.
Many business owners fail to implement a solid exit strategy or pension plan for the day when they are no longer at the helm. It’s important to ask yourself:
The foundation of an IRP is permanent life insurance so you must be able qualify for coverage. (Note: a non medical life insurance policy can still work well for an IRP)
In other words dont wait too long to implement this strategy. This tax & estate planning is solid but it needs time to work and if you wait until you’re difficult to insure the returns for yourself and family are diminished.
IS AN IRP BETTER THAN RRSP?
Many business owners take a minimal income from their business to minimize their taxes. This can make it very difficult to create RRSP contribution room and establish their own pension plan.
With an IRP the government doesn’t limit what you can save or withdraw from your corporately owned whole life policy. An IRP strategy is commonly utilized by:
Some business owners do not contribute to CPP and OAS is clawed back at certain thresholds. IRP is a pension plan with other benefits. The pension payment you receive from an IRP does not prevent you from collecting future government benefits as it will be a bank loan or line of credit and not official income. The premium payments for an IRP strategy can be monthly premiums or an annual premium.
WHY SHELTER BAY?
Shelter Bay’s licensed insurance brokers know how important it is for you to plan for the future. We all want to ensure our loved ones are taken care of if something happens to us. Planning for your retirement can be exciting, and we’re honoured to help you find the right insurance product that fits into your IRP strategy.
We don’t work for any particular insurance company, which is good news for you. It means we have access to a wide range of life insurance policies that can fit into your long term strategy. Speak with a licensed advisor today and let us help you find a policy that works for you. Call our toll free number at the top o this page.