Life insurance has been used as a tax efficient method of accumulating cash for some time now. However, there have been several legislation changes for corporate life insurance that you should be aware of. These new rules will reduce the amount of cash that can be tax sheltered within a life insurance policy. These new legislation changes will take effect January 1st, 2017, which makes 2016 a great year to purchase a cash value corporate life insurance policy.
A simple explanation is there will be changes to how much cash value can accumulate within a policy before it becomes subject to income tax. Below is a brief explanation of how the changes affect different types of policies.
Corporate Life Insurance used as business collateral
Any business owner or investor who borrows funds for an investment will see a reduction in their collateral insurance tax deductions. However, if you purchase a policy before January 1st, 2017 your tax benefits will not change.
Cash Value Life Insurance
Permanent cash value life insurance policies were used as an effective method of accumulating tax-deferred cash. After January 1st 2017, this will be a less effective strategy for sheltering cash from accrual taxation.
Prescribed Life Annuities
After 2016 the mortality table used for calculating annuity income has been updated to project a longer life expectancy. This will result in an increase in the taxable portion of the annuity income.
The real opportunity is to purchase a policy before the legislation changes for corporate life insurance takes effect in 2017. Keep in mind that even though legislation will be changing for the cash portion of your policy, death benefits are unaffected and still paid out tax-free to the beneficiary.
If you have questions about your corporate life insurance policy or would like to know more about how the legislation changes affect you, contact us directly.
The information in this material is derived from various sources. Material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please contact us for benefit, pension and insurance advice based on your corporate or personal circumstances.