In Canada, you can own a policy on anyone you have an insurable interest in (with their permission) including yourself. If your company owns the life insurance on your life and the company is not the beneficiary. It would be considered a taxable benefit.
With one exception transfer of ownership is considered a deemed disposition. In other words it could trigger a taxable gain.
The Income Tax Act provides for the transfer of a policy to the policyowner’s child, without a taxable disposition to the policyowner, if a child of the policyowner is the only person insured. “Child” includes any natural or adopted child, grandchild, stepchild, son- or daughter-in-law.
THAT ONE EXCEPTION creates a planning opportunity.
Does it make sense to keep paying income tax each year on the growth of your non-registered investments?
Use non-registered assets you won’t need during your lifetime. Buy an exempt permanent life insurance policy. Structure the policy to: enable tax-efficient distribution of your assets to future generations and give you control and access while living.
Growth inside a permanent life insurance policy is not subject to annual tax (within limits) and Proceeds of life insurance go to named beneficiaries tax-free.
Example:
How it works:
You own the policy. Your adult child is the insured person, Your grandchild is the beneficiary
While living, Your adult child is contingent owner
At your death, Your adult child becomes owner of policy
Benefits for you
Taxes
- Reduce your annual income tax
Control
- Keep control of your assets
- Can change beneficiary and coverage amount
(subject to underwriting requirements)
- Can access the cash value in the policy if necessary
Legacy
- Preserve your legacy for your children and
grandchildren
- Generate estate value, not taxable income
If you have further questions, or feel that I could be of assistance, please do not hesitate to contact me.
If you would like to work with a local life insurance broker, you could start with a Google search. For example, if you search for: life insurance broker Halifax or life insurance agent Halifax, my name, along with several others, will come up. You can use the same method to find a life insurance broker in your community.
The owner of the life insurance policy is the person who can change the beneficiary, change the payment type, borrow from the policy, reduce the face amount, or cancel the policy. If you are the only one you trust to do those things, then you should own your own policy.
If you have a very large estate, you may want to consider having another person or a trust own your policy, for tax purposes.
That is a great question! The best way to answer your question, is to ask you a few: Who is being insured? Who will be making the payments? And who is trustworthy enough to oversee the policy? If the insured is a minor, then you will want a parent or guardian to own the policy. You can be the owner of your own policy. If the policy is paid for by someone other than the insured, do you want them to be the owner? The owner has the right to change who will get the money when the insured passes. Therefore, you want the owner of the policy to be in line with your wishes. Hope that helps, thanks for asking!
Co-Founder, TermInsuranceBrokers.com, Goldenzweig Financial Group, Las Vegas, Nevada
Generally, you will want to be the owner of your own life insurance policy.
Two of the three parties of a life insurance policy (owner, insured, and beneficiary) must be the same entity so you do not violate the goodman triangle (a tax issue arises when you have 3 different parties on a life insurance policy). As most insureds want to have control over the policy that is on their life, they will be the owner and insured of the policy.
If you are purchasing the life insurance for estate planning purposes, you may be using an Irrevocable Life Insurance Trust (ILIT) and putting the insurance into the trust. When you do this, the ILIT would be the owner and beneficiary of the policy.
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With one exception transfer of ownership is considered a deemed disposition. In other words it could trigger a taxable gain.
The Income Tax Act provides for the transfer of a policy to the policyowner’s child, without a taxable disposition to the policyowner, if a child of the policyowner is the only person insured. “Child” includes any natural or adopted child, grandchild, stepchild, son- or daughter-in-law.
THAT ONE EXCEPTION creates a planning opportunity.
Does it make sense to keep paying income tax each year on the growth of your non-registered investments?
Use non-registered assets you won’t need during your lifetime. Buy an exempt permanent life insurance policy. Structure the policy to: enable tax-efficient distribution of your assets to future generations and give you control and access while living.
Growth inside a permanent life insurance policy is not subject to annual tax (within limits) and Proceeds of life insurance go to named beneficiaries tax-free.
Example:
How it works:
You own the policy. Your adult child is the insured person, Your grandchild is the beneficiary
While living, Your adult child is contingent owner
At your death, Your adult child becomes owner of policy
Benefits for you
Taxes
- Reduce your annual income tax
Control
- Keep control of your assets
- Can change beneficiary and coverage amount
(subject to underwriting requirements)
- Can access the cash value in the policy if necessary
Legacy
- Preserve your legacy for your children and
grandchildren
- Generate estate value, not taxable income
If you have further questions, or feel that I could be of assistance, please do not hesitate to contact me.
If you would like to work with a local life insurance broker, you could start with a Google search. For example, if you search for: life insurance broker Halifax or life insurance agent Halifax, my name, along with several others, will come up. You can use the same method to find a life insurance broker in your community.
If you have a very large estate, you may want to consider having another person or a trust own your policy, for tax purposes.
Two of the three parties of a life insurance policy (owner, insured, and beneficiary) must be the same entity so you do not violate the goodman triangle (a tax issue arises when you have 3 different parties on a life insurance policy). As most insureds want to have control over the policy that is on their life, they will be the owner and insured of the policy.
If you are purchasing the life insurance for estate planning purposes, you may be using an Irrevocable Life Insurance Trust (ILIT) and putting the insurance into the trust. When you do this, the ILIT would be the owner and beneficiary of the policy.