We all know the main benefit of a life insurance benefit plan is to provide for your family in the event that you pass away. We wanted to explain the benefits from a tax perspective when purchasing life insurance within a corporation vs. personally.
The Growth of your insurance plan is tax free
The first benefit of paying for premiums within a corporation vs. personally, is that you do not have to pay for the life insurance costs with after tax personal dollars. The second, is that the value of the life insurance plan grows tax free, since generally a portion of the life insurance premiums is invested in marketable securities inside the insurance policy.
All life insurance policies are protected within the policy, therefore no creditors or legal claims can be made on savings within the plan.
Benefits paid are tax free
When the insurance company pays the benefit, since the premiums were paid within the corporation, the funds are sent directly to the corporation first. This way you can pay a tax free dividend to the family estate in the of a capital dividend. After the capital dividend is paid to the estate, the proceeds are distributed to your family members/ beneficiaries of the estate.