Unlocking the Investment Power of Participating Whole Life Insurance for Incorporated Business Owner

If you're an incorporated business owner, you probably set up your corporation realizing that saving a dollar is as crucial as earning one.

Indeed, a 12.2% tax rate is much more appealing than 53.53%.

However, a less appealing aspect is the 50.2% tax rate on passive income within your corporation. This often complicates investing within the business framework.

Consequently, many corporate owners withdraw funds from their businesses to invest in vehicles like TFSAs. But TFSAs present their own set of challenges. For one, the annual contribution limit, if maxed out, stands at just $6,500. Moreover, these contributions are made with post-tax personal money. If you're incorporated, this means you might need to draw nearly $13,000 (assuming the highest tax bracket) to make an annual $6,500 TFSA contribution.

So, where's a more appealing option with greater contribution flexibility?

Enter the Participating Whole Life Insurance Plan.

"Insurance as an investment?" "How can an insurance policy mirror a TFSA?"

To begin with, both these vehicles offer tax-free growth. Furthermore, the death benefit from your insurance can be disbursed tax-free, akin to a TFSA. This happens when the policy proceeds are transferred to your Capital Dividend Account (CDA) and then withdrawn as a tax-free dividend for your shareholders.

You can also access your policy's cash value in a tax-efficient manner while you're still alive, and sometimes even tax-free. And here's the kicker:

Optimizing the Additional Deposit Option within your plan creates extensive yearly "contribution" space. This allows you to channel funds into your policy's cash value — essentially its investment component — which you can access and potentially enjoy during your lifetime.

While the TFSA has been in the spotlight since its introduction in 2009, it's worth noting that many of its perks are mirrored in a participating whole life insurance plan.

For incorporated business owners, these advantages are especially compelling.

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