Corporate-owned Participating Whole Life Insurance
Building a stronger investment portfolio and financial control in your business is important for any business owner and it’s our business to help you achieve that. Financial diversification, insurance protection, accessible liquidity, tax-advantages, guaranteed returns, potential dividends, retirement, and estate planning and preservation, are all attributes our business clients look for in developing a comprehensive corporate financial strategy.
Corporate-owned participating whole life insurance (also referred to as par life or dividend whole life) is a unique alternative asset class, an all-in-one financial solution that provides many of these attributes and protects your company and business interests against unforeseeable risks.
When structured using one of our Bank On Whole Life™ concepts, a corporate-owned participating whole life insurance policy not only offers your company insurance protection and a tax-free death benefit but a cash value.
This cash value is a supercharged asset that provides your business with accessible, liquid capital that builds equity year over year through guaranteed returns and potential dividend earnings. You can leverage the equity in your corporate-owned participating whole life insurance policy’s cash value to finance business expenses, expand your business, or use as collateral for other sources of business financing. By leveraging this equity, you can also reduce tax implications.
A corporate-owned participating whole life policy can also provide you with a tax-free retirement income in the future—under current tax law, such an arrangement would use the policy as collateral for a personal loan at a financial institution. And besides being useful in balancing portfolios and planning for retirement, participating whole life has been long known for its estate planning benefits.
Corporate-owned participating whole life insurance offsets tax liabilities upon death, effectively circumnavigating the double-tax trap, which enables you to preserve your assets for your business and your family. As a business owner, you can also use the equity in your corporate-owned whole life insurance policy to fund buy-sell agreements or arrange key personal protection.
As a business owner, you can also improve the efficiency of your investment portfolio by moving some of your fixed-income assets (taxable investments) into a corporate-owned participating whole life insurance policy. In terms of portfolio theory and the efficient frontier (EF), investment objectives in the par account—a pool of assets made of premiums and expenses, typically invested in long-term based asset mix. It provides balance in risk and returns; yielding the highest return while considering the expressed (low) risk level for the expected return, making par whole life your better option to fixed-income investments.
As a business owner, it is important to protect your earning power and business assets should you become critically ill and unable to work for an extended period. Critical illness insurance pays you a tax-free lump sum, generally following a survival period of 30 days after diagnosis of one of 25 different life altering illnesses. In terms of a corporate financial strategy, critical illness insurance can be bundled with a corporate-owned whole life insurance policy for administrative and cost efficiencies.
As a business owner, it is important to protect your earning power and business assets should you become temporarily or permanently disabled as a result of an accident or an illness. Disability insurance is designed to replace a portion of your earnings with monthly payments if you’re incapable of working or earning an income after a waiting period has passed. In terms of a corporate financial strategy, disability insurance can be bundled with a corporate-owned whole life insurance policy for administrative and cost efficiencies.
Health & Welfare Trusts provide incorporated business owners with customized health coverage specific to the company and employee needs—two or more employees are needed to establish a group policy—pay with the benefit of writing off 100 percent of healthcare costs as a business expense. There is no deduction and you’ll use before-tax dollars. Potentially providing substantial tax savings for your business over deducting your dental and medical-related expenses through your personal income tax to receive a tax credit. Although limited in comparison to corporate benefits, self-employed individuals can also take advantage of Health & Welfare Trusts.
Buy-Sell Agreements (Shareholders)
Buy-sell agreements are contractual agreements designed to protect you as a business owner, business partner, or shareholder in a business or corporation from unforeseeable risks such as premature death, critical illness, or disability.
A corporate-owned participating whole life insurance policy can be used to cover the funding of buy-sell agreements where multiple owners or shareholders are involved in a company’s ownership, thereby easing the transition of the deceased or disabled owner’s business equity to the surviving owners.
It also can provide you with a funding source for succession planning by outlining how shares or company ownership will be transferred and handled in retirement—also useful in other situations such as divorce/marriage breakdown or even bankruptcy. This could alleviate tense or legal implications in the future for all business partners.
Having a buy-sell agreement attached to a corporate-owned participating whole life policy provides business partners with security and resources to promote the financial stability for their business. The alternative is to risk not having the money during critical times when it is needed.
Key Person Protection (Business Owners)
As a business owner, you can also use a corporate-owned participating whole life policy to fund key person insurance. Key person insurance is life insurance for business owners, partners, or key employees within your company—people you designate as key figures and irreplaceable in the running of your business, and whose absence from your business, could ultimately result in financial loss. Key person insurance protects you as a business owner from unforeseeable risks such as death or, with additional policy riders (insurance coverage), diagnosis of a disability or critical illness of a key employee or business partner.
The participating whole life insurance policy for a key employee, partner or owner is purchased by your corporation. The company is designated the beneficiary of the policy and pays the premiums. Upon the passing or unlikely death of that insured key person, the company receives the funds from the death benefit. The death benefit provides your company liquid capital that can be used to minimize business disruption by covering company-related expenses and hiring a replacement key person.
These funds may be appropriated within your company as needed, such as: to repay debt, distribute to investors, or pay severance to employees during restructuring or selling of the business. Funds could also alleviate time pressures for surviving partners in settling the business sales process—potentially saving them from tapping into personal savings, selling off company assets, or even avoiding bankruptcy.
And of course, the power of corporate-owned participating whole life is still at work every day as a funding source and a wealth generator with guaranteed returns and potential dividends. This wealth generator gives your business the ability to leverage the policy’s equity in the cash value to fund current business expenses through a policy loan from your key person corporate-owned participating whole life insurance policy.
As a business owner, you may be struggling to manage financial obligations and expenses known as liabilities. Many business owners manage liabilities by utilizing hard cash from the company coffers.
Corporate-owned participating whole life insurance, when structured using one of our Bank On Whole™ concepts, can provide your business with a resource to draw from to optimize funds while dealing with such liabilities.
Depending on the financial strategy and need for insurance, as a business owner, you can store large amounts of cash in a corporate-owned participating whole life insurance policy, which generates a higher cash value over time. This provides your business with built-in security for managing liabilities and is particularly useful in sheltering income that could be deemed as passive and subject to tax—particularly beneficial for those susceptible to the $50,000 threshold in accordance to the federal passive income rules.
The cash value in your policy also provides your business with an emergency funding source for unforeseen liabilities that may require quick turn-around funding since it can be accessed in days through a policy loan, absent of credit checks and other financials.
And in the unfortunate passing of a business owner, the death benefit of a corporate-owned participating whole life insurance policy can be used to manage and repay corporate debt obligations.