Corporate Ownership of Life Insurance
There are many benefits associated with corporate ownership of life insurance. These benefits include the capital dividend account, and using tax-deferred funds in the to fund premiums:being received tax-free by the corporation, as well as the death benefit being credited to the
Using Corporate Funds to Fund Life Insurance Premiums
One of the key advantages to having a life insurance policy owned by one's holding oris that these entities are taxed at a lower rate than individuals.
If the corporate earnings are paid out to the shareholder by way of a dividend, the shareholder will pay tax on those dividends. If the company retains its earnings, it then may invest these tax-deferred funds prior to paying them out as a dividend to the shareholder. If the company uses the tax-deferred funds to pay the premiums for life insurance on the shareholder, then the funds will accumulate exempt from tax in the policy. When the shareholder dies, the company receives a tax-free death benefit, and all or a large percentage of those proceeds are credited to its capital dividend account. The amount credited to the CDA can then be paid tax-free to the beneficiaries of the shareholder, thereby eliminating a tax liability that would have otherwise arisen if he/she had withdrawn the funds from the holding company by way of a taxable dividend.