Scenario / Situation

Client is selling 1/3 of his company to long-time manager.

The client’s lawyer recommended updating the existing shareholder agreement.

Who introduced client to us? 

Client’s corporate lawyer.

Objectives

In the event of a death of a key shareholder, proceeds of the corporate owned life insurance policy will flow through the Capital Dividend Account (CDA) tax free to purchase outstanding shares from deceased shareholder’s estate.

Strategy / Solution 

Proper valuation methods were used to determine the fair market value of the company.

New life insurance policies need to be purchased to cover liability, should either shareholder die.

The life insurance proceeds will be used to execute the buy-sell (shareholder) arrangement and repurchase the shares.

Alternative Options

The client could self insure (have funds readily available in the corporation to repurchase shares).

This is inefficient use of capital and leaves other issues open for legal challenges.

In the event of a death, fair market value must be negotiated with the deceased’s estate, increasing legal dealings with estate’s spouse and family.

Wrap up

The Capital Dividend Account (CDA) plays an important role in corporate life insurance planning.  

This national tax account helps insure a level of tax integration and makes funding shareholder and partnership buy-sell agreements very tax efficient.

An established company has just recently started a Group Health Benifits plan.  

8 of the 10 workers are Employees – while the other 2 are independent contractors.  

These two contractors also happen to be the owners (and high – income earners)  

As an independent contractor you are not typically eligible for Long-Term Disability on the Group Health Benifits Plan.  

How can we provide income / lifestyle protection to these two independent contractors?  

Who Introduced Client to Us?

The firm’s general insurance agent (provides vehicle fleet insurance and building insurance).  

Objective

Provide income/lifestyle protection for the 2 independent contractors.  

Traditional Disability Insurance covers T4 salary income and not income from multiple sources (as in the case of an independent contractor).  

Provide a solution outside of the group benefits plan customized for these high-earning individuals.   

Alternative Options

This client opted for the Long-Term Care option - not only less expensive per month, but he wanted the security that the coverage would last far beyond age 65.  

This client could have chosen a hybrid of both options.   

Wrap up

Income is the most important asset to insure.  

Independent contractors do not typically qualify for Long-Term Disability coverage on group plans.  

Long-Term Care insurance is an excellent alternative for such individuals who want to protect the lifestyle, but don’t fit the traditional income type and employment definitions. 

Business owner (one of 4 shareholders) whose company is reducing the corporate retained earnings over a 10 year period. These cash flows are in form of dividends and are above the salary and bonuses that the client uses for lifestyle and savings.

Who introduced us to the client?

Client’s investment advisor.

Objective

Find a tax efficient way to deal with the corporate dividend flows over the next 10 years.

Tax Shelter as much of the dividend income as possible and maximize the estate value (death benefit) to the clients family.

Purchase a permanent life insurance policy in the client’s holding company and use tax free dividends rolled over from the company to pay premiums and fund the policy growth.

Alternative Options

Client could simply take the dividend as income in the year received and pay tax on the funds.

Funds could be invested within the corporation providing a slightly more tax efficient return (corporate class mutual funds).

Wrap-Up

Permanent (cash value) life insurance is a fantastic way to provide tax sheltered growth of funds, while building an estate for ones family (tax free).

For a client with a holding company the insurance can be owned corporately to provide additional savings and efficiencies.

• The unauthorized access to systems containing private information

• A virus being transmitted to a third party’s system.

• Theft of customer’s private information (credit card data).

• Theft of employee identification information (Social Insurance Numbers).

• Cyber threats, extortion or attacks by ex-employees to shut down your system causing you and your customers to suffer damages.

• A logo displayed on your website infringing on someone else’s trademark.

• Content published on your website, blogs or in emails and social media networks by employees being susceptible to copyright infringement and defamation.

Coverage is also available to pay for the expenses incurred to recover from a privacy or security breach, such as:

• Notifying your customers, credit monitoring and changing their account numbers and security codes.

• Hiring investigators, public relations and advertising consultants for crisis management.

• Rewards to informants that lead to conviction of persons who caused the loss.

• Replacing or reproducing your data that is altered, damaged, deleted or destroyed by a cyber attack.

• Business interruption and extra expenses incurred during recovery.

Claims and lawsuits can have significant financial damages on your business. Your firm’s reputation and market share can be damaged. Also, your revenues can decline if you can’t recover quickly.

There is usually no coverage for these exposures under a commercial general liability policy. A cyber liability insurance policy is designed to protect your business and help you recover from the risks faced with the increased dependency on technology.

For more information on commercial insurance and cyber liability insurance contact our insurance brokers.

Executive insurance

Scenario

A closely-held corporation recently acquired a new business. The executive responsible for incorporating the new business into the parent company has specialized skills and years of experience.

To lose this executive due to death or serious illness would be a major financial risk to the parent company and their major investment.

Who introduced us to the client?

The parent company’s new lawyer (who replaced a retiring senior lawyer).

Objective

Company is faced with a certain financial risk should they lose the key executive.

There is already some key person life insurance in place for this executive.

Focus on providing Critical Illness Insurance protection on the key executive.

Determine how much coverage is needed.

Structure the contract to maximize the tax-efficiency and premium payments.

Strategy & Solution

Risk estimated at $300,000 should the executive become seriously ill. This money would be used for recruiting, hiring, and training and paying for a replacement executive.

Apply for the Critical Illness Insurance policy.

Have the policy fully owned by the corporation, paid for by the corporation, and have the corporation as the beneficiary.

Alternative Options

It is possible to share the ownership of the Critical illness policy between the executive and the corporation.

This strategy can provide significant “bonuses” through a retirement compensation model.

Wrap-Up

Insuring the key executives is essential.

Most companies consider life insurance first then get the critical illness coverage set-up.

Paying for the policy with corporate dollars instead of personal after-tax income results in a lower overall cost.

For more information on how life insurance can benefit your business contact Brad Pashby.

The costs to a patent infringement suit can be horrendous. Companies that can’t afford to protect their IP are exposed to the many risks of infringers. They can be sued by alleged infringers. The value of the companies IP can be significantly reduced and make the companies IP worthless. The firm will lose their competitive edge and may have to abandon their IP rights.

Abatement (enforcement) insurance allows small firms to act big by providing them with coverage for litigation expenses to enforce intellectual property against alleged infringers.

Businesses with the ability to enforce their intellectual property can:

√  Gain market share.

√  Retain capital.

√  Provide litigation funds to optimize a favourable decision.

√  Reduce pressure to settle.

√  Attract investors.

√  Strengthen licensing position.

√  Deter infringement.

To get IP insurance (infringement insurance) a company doesn’t need a patent or need to be in the process of obtaining a one. It is best practice to apply for infringement insurance before any commercial activity or commercial use that can lead to infringement begins.

Infringement Insurance is a specialized type of business insurance. It is important to find an insurance broker who is experienced, knowledgeable and who understands the importance of your intellectual property.

For more information on IP insurance contact Nick Batistic, a specialist in IT insurance, intellectual property and in directors & officers liability.

Critical illness insurance

Scenario

Sole owner of an incorporated company.

12 employees.

1 employee being groomed for succession.

Who Introduced Client to Us?

Accountant of Company.

Objectives

Protect the company from the financial risk of the sole owner becoming seriously ill.

Solution Strategy

Insure the owner for $250,000 of critical illness coverage.

The policy is owned and paid for by the parent company.

If the owner is diagnosed with cancer or has a heart attack the company gets $250,000 tax-free.

This money is tax-free and can be used to replace the young technology executive or to recoup the initial investment.

Did You Know?

This is based on a real situation and the owner who was diagnosed with colon cancer was 40 years old.

The cheque for $250,000 was delivered one day before the owner was to start chemo treatments.

The funds were put to use right away to pay employee salaries, promote and pay his right-hand employee to take over major projects, to pay down corporate debt, to pay leases and other suppliers.

Alternative Options

The critical illness policy premiums could have been paid through a health and welfare trust (HWT) in which case the premiums may be tax-deductible.

Wrap-Up

No one ever thinks they will be faced with such a dire situation

Without the tax-free funds from the critical illness policy there would have been serious business consequences— laying off of staff, loss of major contracts, extra stress to the owner, loss of hope.

Critical illness is still a type of coverage that few business owners really understand. Helping to show the value of such policies allowed us to differentiate ourselves and save a viable business.

For more information on how life insurance can benefit your business contact Brad Pashby.

Protecting Your Home and Family from Fire

Protecting Your Home and Family from Earthquakes

Protecting Your Home with Preventative Maintenance 

For complete protection, your private client insurance broker will help you make sure you  have the best home insurance to protect your investments and lifestyle.

Scenario/Situation

A Dentist wants a way to protect her corporation should she become seriously ill.

Having built a successful practice, the dentist has a good monthly cash flow and an incorporated company with retained earnings.

At a high marginal tax rate, she needs to find any and all ways to limit her taxable income.

Who introduced client to us?

A tax specialist from the client’s Chartered Accounting firm.

Objectives

Protect the corporation should the dentist become seriously ill.

Provide another tool to help limit the client’s after-tax income.

Provide a way to access funds from her professional corporation tax-efficiently.

 Strategy/Solution

Purchase a critical illness policy and split the ownership between the professional corporation and the dentist (personally).

The insurance benefit comes to the corporation tax-free.

The client also gets to access all paid premiums should she decide to cancel the policy after 15 years.

The dentist is able to get all the premiums the corporation has paid to themselves personally (after a 15 year period) – in effect accessing money from their own corporation tax-free.

Alternative Options

The dentist could forgo the tax-savings of the $50,000 Return of Premium and simply apply for a 100% corporately-owned Critical Illness policy paid for totally with corporate dollars.

Wrap-Up

Being diagnosed with a Critical Illness is an unfortunate reality for many – and the financial impact for an incorporated professional can be devastating.

Using the Return of Premium option and splitting the ownership of the Critical Illness policy between the individual and their corporation there are significant tax-savings (tens of thousands of dollars worth).

For more information on how life insurance can benefit your business contact Brad Pashby.

If assault or other crime has occurred in the past, landlords are more likely to be held liable when a crime occurs on their property.

While good business insurance can provide protection against liability lawsuits, it’s always best to prevent damages and losses before they happen. The Aviva Hardfacts: Apartment Building Security provides a great proactive risk management plan to help protect landlords and their businesses.