Our Report on Your Life Insurance

Our report and presentation will show you what type of life insurance policy you have now and how it works. If your insurance has a cash value it will show; the updated value of the policy, a projection of these values at the current investment rate (if available) and how your cash value program may have been affected by low interest rates and tax changes. In addition, the presentation will contain a comparison of your existing policies to ones that are currently offered by industry leading life insurance companies.


The Life Insurance Solution

Life Insurance can provide the funds necessary to buyout your partner’s estate at death, so you do not have to be in partnership with your former business partner’s spouse.

Life Insurance can fund a tax liability associated with your business, revenue property, recreational property and any other growing concern. In most cases your tax liability can be funded for as little as 10 cents on the dollar.

Life Insurance can help the transition of a family business from one generation to the next.

Life Insurance can create a tax loss to offset tax payable (pre 1995 rules).

Life Insurance can help fund an employee purchase of your business.

Life Insurance can provide the cash necessary to equalize an estate. This can be very helpful when the majority of the estate is one large asset like an active business or a real estate holding.


Corporate Buy-Sell Agreements

Many corporations use a life insurance policy to fund their Buy Sell and/or Unanimous Shareholders Agreement. A life insurance policy can be the most cost effective way to provide the capital necessary to purchase the shares back from the deceased shareholder’s estate. There are many different ways to set this up. In a lot of cases time passes and the buy sell agreement is never checked to verify whether or not it covers the areas that have changed in the company.

Many times the insurance coverage has not kept up to the present value of the company. New Shareholders have been added to the company, but they have not been added to the agreement or life insurance purchased. As a corporation grows in value so do the tax implications of a forced sale. There are seven common ways to set your agreement up.

• Do you know which method is used in your Buy Sell?
• Do you know how each of the other six ways could apply to your situation? Can you say for certain that you know all of your options?
• Do you know how your agreement will deal with the following issues:
• How will the Fair Market Value of your company be determined?
• If life insurance is used to fund the buy sell agreement how will the payout be resolved if the death benefit is inadequate?
• Are the life insurance proceeds to be the minimum price of the shares?
• Have the pre 1995 Stop Loss Rules (potential for major tax savings) been acted on?
• Do you know how your Buy Sell handles a disability or critical illness such as: cancer, stroke or heart attack?
• Have you made provision for family members working in the business?

Estate & Tax Planning Ideas

Capital Dividend Account

Private Canadian corporations can maintain a notional tax account, called the CDA. This method allows the tracking and passing through to the shareholders, by means of tax-free capital dividends, certain amounts that may be received tax-free. The proceeds of a life insurance policy of which the corporation was a beneficiary on the death of the life insured, less the adjusted cost basis (ACB) of the policy can be distributed tax free to the shareholders (Sec 89(1) of the Income Tax Act). The Capital Dividend is a valuable tool that should be included in your estate plan.


Tax Elimination: Stop Loss Pre 1995 Rules

There are a number of advantages when a policy is used to purchase back shares from the deceased shareholder estate. By utilizing the pre 1995 Stop Loss rules this method can cause the estate to create a capital loss equal to the Fair Market Value of the shares less the paid up capital. This method has the potential to create millions of dollars in tax savings.


Life Insurance Offered By Creditor

Life insurance provided by some lending institutions can be expensive. This coverage is underwritten by a life insurance company that is independent of the bank, credit union or trust company. The coverage itself is issued on a group basis and relies on a pricing structure that is different than that of individual policies. In addition, the credit group coverage is not eligible to create the Capital Dividend Account (as mentioned above).

We can help you buy an individual policy that cannot be cancelled for any reason (other than fraud or non-payment). So if your loan or mortgage is up for renewal and you have a personal or corporate owned individual policy it cannot be cancelled because it is separate from the loan or mortgage. You can rest easy knowing the coverage will pay out when you need it the most. Also an individual owned policy is eligible for the CDA account. The CDA does not cost you anything and if set up correctly, it can be used with corporate owned policies that have been collaterally assigned to the bank.


Universal Life as an Investment

Why would anyone want to purchase life insurance as an investment?

Traditionally, Canadians have been told to buy term life insurance and invest the difference. This works for most people. However, business owners and high income earners are not average Canadians and have very different needs. By utilizing Sec 12.2 / 148 (b) of the Income Tax Act Universal Life policies combine tax sheltered growth and some of the best annual rate of returns available. There are fewer and fewer tax shelters left in Canada and most involve some obscure subsection of the Income Tax Act. We have been helping clients set up Universal Life tax shelters for many years. The difference with Life Insurance tax shelters is that they have been accepted by Canada Customs and Revenue Agency for the past 30 years.

We have been marketing and managing Universal Life Insurance Policies for many years. When looking at a Universal Life Policy as an investment, careful consideration should be given not only to the product choice but the broker’s experience in dealing with them. It is important for the broker to be able to understand and know how the different contract definitions will affect the outcome of the policy and performance. There are many life insurance companies that manage accounts that would appear to be similar to the ones offered by other life insurance companies. In reality two different life insurance companies that have an investment option linked to the same index could, after a period of time, have much different account values just because of the difference in each company’s individual investment formula. When using a Universal Life Policy as an investment it is important that the client understands and is shown in the policy contract that all of the components like policy fees, mortality charges, death benefits and investment formula’s are stated and/or guaranteed. What good would a contract be if the life insurance company could unilaterally start raising the cost of insurance? This is why we offer products that have a guaranteed cost of insurance. Universal Life is a very important planning tool because of its versatility. It can be used to fund your tax liability and shelter large amounts of capital at no additional cost. We highly recommend that you ask us how you can personally benefit from this product.


Universal Life Investment Options

Over the past 30 years life insurance companies have had to change the way policies earn cash values; this has been achieved by investing in a properly structured policy that is accountable and work for you. One of the most important issues with any investment is; are you in the investment that best suits your risk level? In a Universal Life the policy owner selects the investment option of his choice. In Recent years, new investment strategies have become available. Bayside Associates have been working with some of the largest global insurance companies to develop features that greatly enhance the success of your life insurance policy investments. This would include features like balanced portfolio planning, risk assessment, lower volatility options, auto rebalancing of selected funds and optimization of insurance costs.

Bayside Associates “Typical Client” Investment Choices have achieved excellent results; the ongoing annual return since 2002 has been in excess of 13.25%.