Capital Dividend Account | Collateral Insurance | Corporate Split Dollar | Corporate Buyout | Corporate Redemption of Shares | Employee/Shareholder Benefit Plan | Corporate Key Person Insurance | Leveraged Corporate Insured Annuity | Corporate Insured Annuity

Capital Dividend Account

Designed for producers working in the "Corporate Market", this illustration shows the portions of tax-free and taxable estate benefit for private corporation owned life insurance.

How to create the optimum illustration

The CDA illustration is usually referred to as a utility. It is not a concept as such but it is an extremely helpful illustration for sales to private corporations where the CDA is mentioned. It provides you with an easy to understand explanation of how the CDA works but also shows your prospect how favourable, from a taxation point of view, the treatment of insurance is because most of the proceeds flow tax-free through the corporation to shareholders. The illustration works for all products whether minimum or maximum funded and / or quick pay or life-pay. It is often used in combination with other illustrations such as the Income Shelter and any of the corporate illustrations.
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Collateral Insurance

For collateral insurance business cases, a portion of the annual mortality charges may be eligible for income tax relief if certain conditions are met. The illustration lists the conditions and shows the cost savings.

How to create the optimum illustration

The Collateral Insurance illustration is a utility designed for use whenever a private corporation purchases insurance on the request of a lending institution for collateral for a new or outstanding loan. It is often used in combination with other illustrations such as the Income Shelter or the one for Key Person Insurance.
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Corporate Split Dollar

For companies wishing to reward young employees by helping them to purchase a life insurance policy. This illustration can be split on Fund Value, Surrender Value or NCPI. Illustrate as regular or Reverse Split Dollar.

How to create the optimum illustration

The Split Dollar illustration is a utility designed for use with split dollar sales. It can be used combination with other illustrations such as the Income Shelter or the Employee/Shareholder Benefit Plan illustration.
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Corporate Buyout

A method of setting up a buy-sell agreement between shareholders of a small private corporation. The proceeds of the corporate owned policies are paid through the CDA to the surviving shareholders to fund the buyout.

How to create the optimum illustration

If used properly, the Corporate Buyout illustration is highly effective in getting sales in the large and ever growing business insurance market. It is usually not a quick sale since it often involves arrangements for or a review of a buy-sell agreement and interaction with other professionals such as an accountant and or a lawyer. Your involvement always starts with the recognition by the business owner that cash is needed at some future date and that life insurance is the superior way to deliver it at the time needed for an investment known in advance. That is exactly what the illustration does for any permanent insurance plan you care to select. To provide funding for a future "living buyout", rapid build up of cash value can provide the funding on a tax effective basis while the base policy provides the funding if the agreement is triggered because of death.
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Corporate Redemption of Shares

A method of setting up a buy sell agreement between key shareholders of a small private corporation funded through life insurance with the corporation being the owner and beneficiary.

How to create the optimum illustration

The Corporate Redemption of Shares illustration is a perfect opener to sales that involve buy-sell arrangements based on the new "Stop-Loss" rules. You become involved the moment the business owner realizes that cash is needed at some future date and that life insurance is the superior way to deliver it. The illustration alerts the prospect to the probability that the redemption of shares approach may be the most suitable. Completing the sale will involve interaction with other professionals such as an accountant and / or a lawyer; but that comes later.

The illustration works equally well on a minimum or maximum funded and / or a life or quick pay basis. If an arrangement for a "living buyout" is of interest, you'll want to use maximum funding and combine it with an Income Shelter to illustrate the attractiveness of accumulating funds within the corporation on a tax-favoured basis.
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Employee/Shareholder Benefit Plan

The provision of future benefits to attract and retain employees who own shares in the corporation. For retirement benefits this illustration should be considered in conjunction with illustrations in the RETIREMENT PLANNING grouping of ADDCALC.

How to create the optimum illustration

This is another "set the stage" illustration for entry into the corporate market. Virtually all employee / shareholder benefit plans call for cash to be available to fund a benefit for the employee and or the estate of the employee. The illustration shows that accumulating money within the corporation through an alternative investment does not compare with accumulating funds through a corporate owned "exempt" life insurance policy. If "living" benefits are a priority, maximum funding for at least 10 years is recommended. If "living" benefits are not a priority you'll note that even a quick pay minimum funded policy will compare favourably with the alternative investment.
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Corporate Key Person Insurance

Demonstrates the effectiveness of life insurance to protect a small private corporation against the loss of an employee upon who the business depends for its success. The insurance purchased may be illustrated on a periodic payment or SPDA basis.

How to create the optimum illustration

Lending institutions frequently request this type of coverage if it is feared that the untimely death of a key person may put company borrowings at risk. Even if a lending institution is not involved, the permanent loss of a key person may pose enough of a risk to a company that protection against it is warranted. To create a sinking fund within the company through an alternative investment is one way to do it. A far better way, as the illustration clearly shows, is to insure the life of the key person. Life insurance, whether minimum or maximum funded or whether quick pay or life pay will compare most favourably with the alternative investment approach.
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Leveraged Corporate Insured Annuity

Illustrates how a corporate owned non-prescribed annuity purchased with borrowed money and backed by a life insurance policy can reduce capital gains taxes at death in a highly cost effective way.

How to create the optimum illustration

Of all ADDCALC illustrations, the Leveraged Corporate Insured Annuity is the one most in need of consultations with an accountant. The key point of contention is the deductibility of the interest for the loan to buy the annuity. If you are new to this type of sale, you should seek the help of an agent who is familiar with the concept or find an accountant who is familiar with this type of sale.

The concept works best for those prospects who are older than the normal retirement age. In fact, the older the prospect the more favorable the figures look. The reason is that the annuity payments are higher and the taxable portions of those payments are lower. It leaves a larger net payment to fund the deposits of the life insurance policy, in spite of the fact that those are higher for older insured's. In addition, older prospects are less reluctant to agree to a Life-0 guaranteed annuity than younger ones due to the shorter life span over which funds are committed. Because of the difficulties involved qualifying for insurance past age 80, it is recommended that prospects over this age not be considered.

The choice of life insurance policy and type of annuity depend in part on the age of the owner or major shareholder to be insured. If the age is close to or past the normal retirement age a minimum funded for life universal life policy, in conjunction with a life annuity, is the best choice. If the age is well before the normal retirement age, a whole life, enhanced life or universal life plan paid for on a quick pay basis in conjunction with a term certain annuity may be the preferred choice.

The best prospects are high net worth owners or key shareholders of a successful corporation who face a large capital gains tax liability at death. Ideally, the corporation they own must have the capacity to borrow funds equivalent to the single premium of the annuity that is going to be purchased to pay for the life insurance premiums. The corporation must be able to demonstrate that the funds are needed to earn active business income.

The client must be advised that interest on the loan can be increased by the bank in the future. It is therefore recommended that a reserve fund be created through the accumulation of the positive cash flow the arrangements creates. By "backing" the annuity with a universal life policy, the side fund can be used for creating the "reserve".
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Corporate Insured Annuity

Shows how dividends paid by a corporation can be increased and capital gains taxes on the death of a principal shareholder reduced through a corporate owned non-prescribed annuity purchased with corporate funds and backed by a life insurance policy.

How to create the optimum illustration

For best results, always choose a Life-0 non-prescribed annuity backed by a guaranteed Term to 100 life insurance policy. Remember to ask for an annuity quote that shows the taxable portion of the annual payments. Have the annual payments start one month from the date you order the quote because you need that first payment for the first premium of the Term to 100 policy. Click on the "Taxability" tab on the bottom of your ADDCALC screen for the table to enter the annual taxable amounts.

The concept works best for annuitants who are at least 58 years old and who are non-smokers. At older ages, a larger portion of annuity payments is non-taxable principal repayment rather than taxable interest earnings. Smokers and annuitants under age 58 still benefit but may have to wait 5 or 6 years to gain from higher dividends. Benefits to heirs however, are immediate and are not affected by age or smoking status.
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Capital Dividend Account | Collateral Insurance | Corporate Split Dollar | Corporate Buyout | Corporate Redemption of Shares | Employee/Shareholder Benefit Plan | Corporate Key Person Insurance | Leveraged Corporate Insured Annuity | Corporate Insured Annuity