Episode 124: Turning Corporate Cash into Opportunity: A Safe Strategy for Business Owners | FAQ Permanent Life Insurance

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Are you worried about watching your corporation’s hard-earned savings shrink under heavy taxes, yet hesitant about taking big investment risks?

Many business owners struggle to strike a balance between growth and security when it comes to retained earnings. In this episode, we dive deep into how a specifically designed permanent insurance policy can safeguard your corporate funds while offering you flexibility and peace of mind. 

No more wondering if your conservative strategy is holding you back or exposing you to unnecessary risk—this discussion reveals how a well-structured policy can protect your money and open doors to additional financial options.

If you’ve ever questioned where to park your surplus earnings without getting hit by high passive tax rates, this conversation offers a fresh perspective. You’ll learn about the power of corporate-owned permanent insurance as a “pass-through” vehicle, combining both protection and liquidity. Whether your goal is to preserve capital for an emergency or pursue new investments without sacrificing stability, you’ll walk away with actionable insights to help you confidently map your next move.

• Discover how to shield your corporation’s savings from punishing tax rates
• Uncover the flexibility of leveraging your policy for unexpected expenses or investments
• Learn how to convert a traditionally conservative approach into a powerful long-term wealth strategy

Press play now to learn exactly how corporate-owned permanent insurance can help you keep more of what you earn and expand your financial future.

Resources:

• Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Dig into our Ultimate Investment Book List
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX.
• Looking for a new mortgage, renewal, refinance, or HELOC? Reach out to Jon to share some options.

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Business owners looking to protect liability, preserve retained earnings, and minimize Income Tax can leverage permanent insurance solutions—such as participating whole life or universal life—through “bank on yourself” and infinite banking strategies. By integrating conservative investments and focusing on tax optimization, the policy’s cash value supports wealth management under low corporate tax rates and provides robust financial planning. This approach ensures corporate insurance delivers both liability protection and a meaningful Death benefit, making it a game-changer for Canadian investing.

Transcript:

Hey there, it’s Kyle again. And today I’m going to be chatting a little bit about some frequently asked questions that we receive. And maybe some of these questions have been rolling around in your mind based on some of the strategies and the content that we do share on the podcast. As many of you may be aware, if you’ve been here a while, one of the tools we use, again, always want to be careful here. We’re not saying investment, but tools that we utilize.

in order to provide optionality specifically when you are an incorporated business owner is a permanent insurance policy in particular, a very specifically designed high early cash value policy. And we do this to create optionality. And I met with a client, actually, actually a listener of the podcast who is also on our email list. If you’re not on our email list, make sure you head to Canadian wealth secrets.com and get on the email list. We send

at least one email a week with some tips and tricks and ideas on how to maximize the use of your RRSP, your tax-free savings account, or other types of buckets. And we really strategize around how do we optimize our situation. And specifically with business owners, not only for business owners, but oftentimes business owners in particular are super, super helpful.

to be utilizing a permanent insurance policy, just like you’re gonna see in today’s discussion. And actually this is some questions from Mark. And Mark met with me on behalf of him and his spouse. His spouse is an incorporated business owner and is actually has a very low risk tolerance. So that’s really important for us to note here. So while we typically focus on utilizing our high early cash value,

permanent insurance as a tool, usually as like a pass through structure, whether it’s at a personal level or at a corporate level. In this case, it could actually be even utilized as an investment because you know what Mark goes on to say here, he says, thank you. I continue to follow your podcast and emails, which is awesome. So awesome to hear that. Thanks for the content, he says. The reason that we haven’t pulled the trigger on the whole life insurance strategy is,

One, it’s for my wife who is conservative and struggles to wrap her head around the strategy and the unknown. So there’s a couple things to note here. It’s definitely not super common. So that is really important to note. So the strategy itself, when we buy corporate owned life insurance, there’s a lot of factors that sort of go into this. But I wanna pause before we even talk about the strategy and let’s talk about conservative investments. So this particular individual,

from our conversation typically invests in very, very conservative balanced type funds or in GIC like assets, which in reality is essentially the same types of returns you’re going to receive from a high early cash value permanent insurance policy. So while 80 % of the conversations that we have with people who are listening to this podcast, I’m guessing his spouse doesn’t listen to the podcast because typically more

creative, more think outside the box types, individuals listen to podcasts like ours on Canadian wealth secrets and on strategy and so forth. So his spouse is actually the opposite. They’re thinking like, how do I just make sure that I don’t lose any money here? And that’s one thing that we know and we can feel very, confidently about when we talk about permanent insurance, specifically high early cash value permanent insurance is that

it will never go backwards, which is fantastic, right? So this money is going to go in there and it’s only going to go up and there are guarantees, but on top of the guarantees are what they call the dividend scale, which is what helps this policy to continue growing and compounding over time. So a lot of conservatism, conservatism, a lot of being conservative in this particular strategy.

when you’re just funding a policy in general. One of the benefits for our business owner friends is that the actual death benefit, which will pay out down the road, which again, isn’t something that’s gonna help you like now the death benefit, but it does actually resolve a lot of problems down the road in that I don’t have to worry about pulling all of the money from my corporation and getting high tax, you know, getting taxed in high tax brackets.

Throughout my lifetime, I can actually allow this asset to grow inside the corporation and I can decide what to do with it at that point. Do I want to leverage the policy for additional assets? Do I want to leverage the policy and actually take an income in a traditional sense out of the corporate structure? Or do I want to actually look to personal leverage strategies and take those personal leverage in order to actually take cashflow

without necessarily triggering any personal income. There’s different approaches that can be used, but what we do get is optionality here. So that’s a really important piece here. So around strategy and unknowns, actually understanding that is going to be really key. We have yet to meet with Mark and his spouse. So I’m going to argue with anyone out there. You’re not going to have any sort of luck if you’re trying to convince a spouse to do something and they’re not involved in the process, right? So if they’re feeling

know, anxious, it’s probably because they actually don’t understand what’s happening. So I would encourage that they hop on a call and it’s likely many calls so that they understand the strategy. They understand what the goal is and that it’s clear so that they can feel confident. Now, the other one was the unknowns around the landscape 15 plus years from, you know, down the road. That is something that no matter what you do with money, that is

an unknown that will not be solved, right? We don’t know where GIC rates are gonna be. We don’t know where the stock market average rates of return are gonna be over the next decade. We don’t know any of those things. But one thing we do know if we utilize a strategy like this one is that you are not going to see that value go down. It will only go up. Now there is a little bit of unknown there because we don’t know exactly what the dividend scale will be 15 years from now. But now if we’re talking about funding this policy,

Right? Funding the policy. Yes, we still don’t know what it’s going to be like 10 or 15 years down the road, but the key is designing a policy so that there is a early enough offset, which means where you can stop paying premium and keep the policy and allow it to continue growing and compounding so that that death benefit does pay out down the road and does what it’s supposed to do while leaving the door opening open for leverage strategies against the cash value. That’s going to be the key here.

So they go on to say, Mark goes on to say the biggest barrier for him and them is the commitment of a specific amount to contribute each year. They typically have 50,000 to 100,000 of retained earnings every year, but they need to have access to that money for unscheduled large expenses. So what I wanna talk about first is that money needs to go do something, right? We can put it under the corporate mattress.

We can put it in three month GICs or maybe six months GICs, but again, if that money is needed, they’re gonna have to actually withdraw from those types of accounts. What you’re probably not gonna do is put it into a mutual fund or an ETF or anything in the markets, because if that money might need to get pulled for whatever reason, you might be in a bad part of the market, bad part of the cycle, which obviously is why people won’t do that. So then the question is, where do we put this money?

Now we can put it into a savings account, right? Go ahead, put it in the high interest yield savings account. Right now, it’s actually not that bad to do that, right? Like it’s not the worst thing in the world. However, inside of a corporation in particular, passive income tax is so high that you lose 50 % of the upside. That is a real issue that if I get a 5 % GIC, which is getting harder and harder to find as rates continue to fall, I’m recording this in December, 2024,

tomorrow we anticipate another rate cut from the Bank of Canada given all of the job the jobless claims and unemployment is up and we have all kinds of other things going on. Well, guess what as interest rates go down GIC rates are going to go down along the way as well, which is problematic over the longer term. But the problem is you get 5 % on a GIC. You’re really only getting two and a half percent inside the corporation.

So the logic here would be that in a scenario like this, this is actually a perfect situation where you might consider if you have routine retained earnings coming in and you typically are just investing in very conservative and very liquid type assets, money market funds, saving account, GICs, things that you’re gonna lose half the upside anyway, right? So that’s gonna have a massive, massive impact on any type of growth of that capital.

What we can do is we actually fund a policy that’s designed so that the upside is there, so that there’s a high amount of premium that can be added, but you have a low downside or a low minimum amount as well. with $50,000 to $100,000, an example could be having a policy where you can max fund up to $100,000. You don’t have to do that, but you could. If you could predict.

every single year you’re gonna get between 50 and 100,000 of retained earnings each and every year like clockwork, then it’s a no brainer. We put 100,000 in each and every year. And if you do max fund for about five years, the way we design this policy, and I say about, because if dividend scales change, this might change a little bit. But as of today, if everything stayed the same, what we’re gonna be looking at is a minimum funding amount of about five years, about five years.

I always encourage people to think longer term. always think of a 10 year runway. So if you know that offsetting at around year five can happen if we’re max funding, then anything after that is going to be just a bonus. All right. Now they do add and they ask and they say, I know you’ve presented a range with a high and low contribution amount. That’s actually not me that does that. It’s how the policy is designed. If we want it to be early high cash value so that you have access to as much of them.

premium that you’re putting into that policy via cash value through loans, we actually have to design it this way. And the reason why is that all of that extra amount above the minimum is actually what we call paid up addition. So basically what it is is an optional amount to buy more insurance each and every year. And the vast majority of the dollars we put in of the optional amount actually helps to impact how much cash value we have.

If we minimum fund this policy for the rest of time, it’s going to be pulling harder on the death benefit rope, which is not what we want with this particular policy design. So said another way, if I knew that I was only going to contribute a maximum of $50,000 each and every year for the rest, you know, for five, 10, 15 or longer years, and I had no ambition to put a dollar more than 50,000.

I would set the maximum to 50,000 and therefore the minimum is going to be somewhere around 15, maybe 18-ish, something in that range. It depends on your age, your sex, all of those things. So with that said, the example that I likely used with this individual because they have 50 to 100,000 in retained earnings is if there’s retained earnings sitting and you want this retained earnings growing,

but you want it liquid where you can leverage against the policy should you need the money for business or emergencies or other situations, a permanent insurance policy is a great fit. Now for other business owners, I’m not talking about Mark and his spouse here because his spouse is conservative. So they’re not gonna be looking to do this. But for other business owners, they might be looking to invest that money. So they put the money in the policy first as a pass through structure.

and then leverage against the policy in order to make the investment they were planning to make anyway. It could be real estate inside the corporation, could be ETFs, it could be whatever they choose. Now you have money working in two places at once, plus the actual pass-through structure, this death benefit, this policy that we’ve constructed, essentially the day we die, it will grow in value. There’s no other asset class that does that.

this one does. So it’s like you get a bonus along the way. Now, if you unfortunately live a shorter than average life, then you get a massive bonus, right? Which is not something we want to happen. But if it did happen, I’ve never heard a family say, shoot, you know, they had too much death benefit. It’s like you’re getting this bonus that will help and essentially create legacy and a higher estate value along the way without interrupting your current plans for for Mark and a spouse.

They’re probably not gonna be using leverage, at least in the interim. They might use leverage down the road where they start to draw against this policy so that they can actually use and create cashflow in their life. We have strategies and structures to help them do that in a tax-efficient way. However, for other people, in the meantime, while they aren’t pulling this money for income, let’s say, because this policy size 50 to 100,000 of…

retained earnings isn’t going to be enough to immediately leverage for any type of cash flow or anything like that. What we can do is we can leverage against it for other asset purchases. For myself and John, we typically leverage against our policies when we get real estate opportunities and we invested in the real estate. And then any cashflow that’s created from that investment will actually funnel back to the policy loan simply to refill the bucket again.

At the same time, what we have is exposure to equities and we have essentially a built-in fixed income type asset. For those that are all conservative and want all fixed income, they could literally just keep piling into this policy. They have the flexibility and the liquidity to access that capital to do whatever it is they choose with it. And they do not lose any of the upside of that passive income from these more fixed income type assets in their corporation to

passive income taxes, is massively hindering the actual growth of that capital. So hopefully that’s helpful to answer some of these frequently asked questions. Here he was saying, you know, for example, if our upper limit’s 40,000 and our lower is 15,000, why do we need the upper limit? Well, you only need the upper limit if you plan to utilize the upper limit.

You know, so and I guess what I would say is like if your upper limit is really 15,000, if that’s your plan, then we’re going to design the upper limit to be 15 because that’s going to have the greatest impact on cash value and your lower value is going to be somewhere around five or so $5,000. So it really depends on what the plan is. But with every plan, having flexibility is really helpful. So here, if they wanted to do a $50,000 per year goal,

And the other the challenges the other 50,000 is now in GICs or other assets that are attracting passive income. They’re losing half of the upside. It’s actually I would argue not a great move. What I would rather do is I try to get in my mind around how much retained earnings typically do I receive each year if it’s on average seventy five thousand dollars, right? I’m picking the middle between 50 and 100. I might make the maximum of seventy five thousand.

However, if have a big year, 151 year, now it’s like you’re gonna have to wait multiple years to get all of those retained earnings in. The one thing that’s really important to note is that every dollar of retained earnings we put into the policy over time is actually deducted off of how much that dollar has to be taxed on the way out of the corporation via the death benefit and the capital dividend account. So every dollar that I leave sitting outside of the policy and every dollar I put

in the policy are gonna be treated very differently when they come out. Over time, we get to deduct off the actual cost of the insurance on the premium dollars that go in. So your adjusted cost basis on your policy goes down, which means if I fund this thing for 10 years and I live for, I don’t know, 20 or 25 years longer, the cost of the insurance is writing off in the background.

how much of the retained earnings that I put in the policy need to be taxed on the way out, which means if I fund a policy of 100,000 for 10 years and there’s $1.2 million of cash value, and let’s say I pass away and the death benefit is $4 million, I may not have to pay any tax on the full $4 million that comes out of the policy, which also means if I have any policy loans out, whether they’re in the corporation for investment,

whether I’ve taken out loans in my life to create tax-free income or cashflow as I like to call it, I get this money coming out of the corporation in a tax-efficient way in order to wind up any leverage strategy that I may have utilized for investment or for cashflow. So hopefully this is really helpful for Mark, but also really helpful for you as the listener.

because there are so many reasons why. We actually received some feedback recently from someone who said, all you guys talk about is insurance. And actually that isn’t true if you go and you look at all of our episodes, but we do often bring up insurance as strategies. Why? Because it’s the number one tool that we wish we knew about when we started our real estate and our investing journey. So while the Smith maneuver is a great move, it helps you to write off interest against your home. Guess what?

the policy is like a mini Smith maneuver machine. The only difference is there’s no emotion attached to that machine, whereas there’s a ton of emotion attached to your primary residence. And it’s what holds people back from doing something like the Smith maneuver. So hopefully this is helpful for not only Mark and his spouse, but hopefully it’s helpful for you. And if you’re curious to learn more specifically, if you’re a business owner and you wanna learn more about corporate owned life insurance,

and all the benefits and our tax optimization strategies, you should sign up for our masterclass. It’s a free masterclass program. You can do it in small little chunks and it’s all online. You can head to canadianwealthsecrets.com forward slash masterclass to sign up. Once again, it’s canadianwealthsecrets.com forward slash masterclass. And note that we also

have the opportunity for you to reach out to us for a discovery call. Head on over to Canadianwealthsecrets.com forward slash discovery in order to book a call today. Just as a reminder, this content is for informational purposes only and you should not construe any such information or other material as legal tax investment, financial or other advice. And as a reminder, I, Kyle Pierce, am a licensed life and accident and sickness insurance agent.

and VP of corporate wealth management in the Pan Corp team. That includes corporate advisors and Pan Financial, where we work to help you, incorporated business owners and our high net worth and high income individuals, maximize your wealth growth through minimization strategies. Take care.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

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