If you apply for life insurance and you receive a higher rate on your policy or you are declined, we will automatically shop your life insurance coverage with other life insurance carriers. First, we will identify (on a "no names" basis) other insurance companies that may be more liberal given the reason you received a higher rate or were declined. Then (again, without disclosing your name) we will send each of these insurance companies the information they need to make an estimate of the rate for which you would most likely qualify based on their particular underwriting criteria. Once we have received the alternative rates, you will be contacted by a customer service representative who will explain your options. You will have the opportunity to stay with the original life insurance carrier you applied with or submit an application to the alternative carrier who may offer a better rate.

One of the benefits of this unique service is that you do not have to complete another medical exam or application for us to shop you with other carriers! We simply use your first application and medical exam results.

Using the business to support retirement income

As you become more and more successful, you may wish to leave money in your business as retained earnings, since the income would be subject to top personal marginal tax rates if withdrawn. Retained earnings, however, may generate investment income to the corporation, in which case business investment income taxes may eliminate any tax savings. There are few methods for you as a business owner to move this money outside the corporation in a tax-effective manner.

An Individual Pension Plan represents one opportunity for owners to invest corporate dollars in their own retirement and may prove more effective than RRSPs. You can move money from the business into a registered plan and deduct the contribution as a business expense. The effectiveness of an Individual Pension Plan depends largely on your age and current earnings.

Other opportunities exist with the use of life insurance. One alternative uses the accumulated value in a life insurance policy to provide you with cash flow at a point in the future, such as at retirement, by serving as collateral for a bank loan. Tax-deferred accumulation of funds within the life insurance policy and tax-free access to those funds through the advances from the bank loan can make this financial planning concept an effective tax planning strategy.

A second alternative uses life insurance to support retirement income through the tax-deferred accumulation of funds within the policy and the opportunity to withdraw a portion of these funds to supplement retirement income.

Our firm can help by showing you tax-effective ways to use life insurance and other financial vehicles in order to provide for your retirement income needs. For more information, our office to schedule a free consultation.

Business investment income taxes

As a business owner, you may accumulate excess surplus not needed for the day-to-day operation of your business. You may wish to avoid personal taxable income by allowing this money to remain within the company rather than make taxable payments to yourself. When you withdraw money from your company, it's taxable, even though you may enjoy tax breaks by receiving the money as dividend income.

Safe, conservative, low-risk investments such as Guaranteed Investment Certificates (GICs) and Canada Savings Bonds (CSBs) allow surplus to grow. However, these vehicles produce an annual investment income which is taxed at the top corporate rate of approximately 50%, depending on your province. In contrast, the regular tax on the first $200,000 of active business income is about 20%. A wiser alternative, and one that may outperform regular investments such as GICs and CSBs, is to have the business use the surplus cash to purchase life insurance.

With life insurance, excess surplus in the business can generate a higher estate value for your heirs than traditional savings vehicles. It provides tax-deferred growth of the business surplus, a tax-free death benefit to the corporation and ultimately allows this capital to be paid out to your heirs virtually free of tax, using capital dividends. Alternatively, the capital can be retained in the business and used for other purposes.

Our firm can design an insurance package to fit your long-term needs in order to maximize what you leave to your heirs. For more information, contact our office to schedule a free consultation.

Covering capital gains tax liabilities

Through hard work and good personal financial planning, you may have acquired property that has increased in value. Perhaps your family cottage was bought for next to nothing before the current growing demand for vacation property, or your taste for obscure works of art is now shared by the wider art buying public. In either case, you now have property that is worth far more than your original cost.

If you are a business owner, you have worked hard to build the value of your business. You may have started virtually from scratch or with relatively little initial investment. The effort you have put forth has led to a sizable increase in the market value of your business as your surplus has grown and debt has been reduced. At this point, the value of your business may have increased well beyond your initial investment.

In either case, the growth in the value of your property carries with it a hidden liability. For example, if you die or sell the shares of your business, or decide to sell the family cottage, a capital gains tax is triggered on the amount by which the value of your property exceeds your investment. When dealing with estate planning, it is important to ensure that your estate has enough liquid capital to cover this potential capital gains tax liability. This is most often done through personal life insurance funded with personal after-tax dollars. Business shares, however, can be dealt with differently.

The owners of an incorporated business have the option of buying insurance through the corporation and using corporate dollars to pay the premiums. When the owner dies, the business receives the life insurance benefit proceeds tax-free. It can use the funds to declare a tax-free dividend to the shareholders so that they can purchase the shares from the estate of the deceased. Or, it can be used to redeem the shares of the deceased shareholder directly, thereby providing the cash necessary to pay the tax. When dealing with the capital gains on business shares, particular care must be exercised to avoid undesirable tax consequences.

Our firm can help your professional advisors minimize the impact of capital gains tax on your estate. For more information on dealing with capital gains tax, contact our office to schedule a free consultation.

Retaining employees / executives

As a business grows, it often becomes increasingly necessary to attract and retain good employees. Sometimes that can be a difficult task. Many potential employees not only seek financial compensation, but also have non-financial considerations. They may be interested in whether the employer provides convenient hours, a pleasant environment, opportunities for growth and advancement and an attractive benefit program.

Employee benefit plans are fast becoming a must in the competitive world of recruiting. It's an expectation for many job seekers, not an item on a wish list. For most employees, group plans are an effective solution. They can be tailored to the specific needs of employees by including everything from term life insurance to dental coverage. However, key employees and company executives require more.

Key employees/executives are attracted by personally tailored plans that include everything a typical employee would receive as well as tax-effective methods of receiving compensation. An attractive package may include an arrangement, such as a Supplemental Retirement Pension, to minimize the effect of high current personal tax rates. Such arrangements can take the form of "retirement compensation arrangements." The tax-deferral advantages of an exempt permanent life insurance contract make it an ideal way to fund one of these arrangements.

For more information on attracting and retaining employees, contact our firm to schedule a free consultation.

Attracting employee / executives

As a business grows, it often becomes increasingly necessary to attract and retain good employees. Sometimes that can be a difficult task. Many potential employees not only seek financial compensation, but also have non-financial considerations. They may be interested in whether the employer provides convenient hours, a pleasant environment, opportunities for growth and advancement and an attractive benefit program.

Employee benefit plans are fast becoming a must in the competitive world of recruiting. It's an expectation for many job seekers, not an item on a wish list. For most employees, group plans are an effective solution. They can be tailored to the specific needs of employees by including everything from term life insurance to dental coverage. However, key employees and company executives require more.

Key employees/executives are attracted by personally tailored plans that include everything a typical employee would receive as well as tax-effective methods of receiving compensation. An attractive package may include an arrangement, such as a Supplemental Retirement Pension, to minimize the effect of high current personal tax rates. Such arrangements can take the form of "retirement compensation arrangements." The tax-deferral advantages of an exempt permanent life insurance contract make it an ideal way to fund one of these arrangements.

For more information on attracting and retaining employees, contact our firm to schedule a free consultation.

Key Person Coverage

When a business loses a key person, several things can happen. First and foremost, the business is disrupted as the owners try to assess what has happened and develop a plan of action. This disruption usually causes a drop in sales as the business focus is diffused. As well, sales that have already been made may not be deliverable or may be questionable, causing clients to go elsewhere. Creditors may become concerned and force the company to liquidate assets to pay back loans or, possibly, put it into receivership. Finally, even if the business is able to survive all these factors, it still must replace the skills that were lost, if possible.

Fortunately, the possibility of death or disability of a key person is a contingency that can be insured. Businesses can purchase corporate-owned life insurance on the lives of their key people. If one of these key people dies, the business receives a tax-free death benefit which it can use to meet expenses and repay debts, thereby easing the fears of creditors. The money can also be used as a reserve against the drop in revenue that may occur while the company goes through a period of transition. Finally, the money can be used to pay the costs of replacing the lost skills.

A side benefit for private companies is that the life insurance proceeds can be paid out as tax-free dividends to the owners once the business has recovered. Funds can also be used to provide a $10,000 tax-free death benefit to the spouse of the deceased. As well, an opportunity exists for the key person to take advantage of the tax-deferral capabilities of certain life insurance policies through split dollar coverage.

Disability insurance is also available on key people. The company owns the plan and is the beneficiary of the proceeds. The proceeds, of course, can be used for all the same purposes as proceeds from life insurance plans. The only difference is that the disability insurance proceeds cannot be paid out as tax-free dividends to the owners of the business, nor can they be paid tax-free to disabled employees.

Benefits of Key Person Coverage:

• Benefits of Key Person Coverage:
   
• Leave working capital for a surviving partner(s) to continue the business
   
• Identify and hire a replacement for the key person
   
• Provide cash for the business in case there is a major revenue shortfall because of the loss of the key person

How do you set up a Key Person Life Insurance Policy?

The first factor to consider in setting up a Key Person Life Insurance Policy is to determine how much death benefit is needed. The minimum usually considered is one times the key persons annual income, but other factors need to be considered. What if the business relationships of this person drive half of the company's revenues? How difficult and costly will finding a replacement be? Are there business debts that would place financial hardship on the company?

Once the death benefit amount has been determined, the business would purchase the policy on the key person. The key person would be the insured and the business would be the owner, payer and beneficiary of the policy. Permanent or term life insurance can be used as a key person policy depending on the needs of the business and how much they are willing to spend.

Our Firm can tailor a package to ensure you have the funds to keep your business operating at peak form. Contact us for a free informational meeting.

How does a buy / sell agreement funded by life insurance work?

Buy/sell agreements may be set up in conjunction with Sole Proprietorships, Partnerships and Corporations. The method for each is a little different. Below you will find a general description of the options available for each type of business.

Sole Proprietorship

If a sole proprietor has a key employee that has the desire to purchase the business in the event of the sole proprietors death, a buy/sell agreement can facilitate the key employee's purchase of the deceased's business. The sole proprietor and the key employee would enter into a buy/sell agreement, and the key employee would purchase a life insurance policy on the life of the sole proprietor. Pursuant to the buy/sell agreement, upon the death of the sole proprietor, the key employee uses the death benefit to purchase the sole proprietors business from his estate.

Partnership
Cross-Purchase Method

The Cross Purchase Method of entering into a buy/sell agreement works best if there are a small group of partners (preferably two). The partners enter into a buy/sell agreement and each partner buys a life insurance policy on each of the other partners lives. Pursuant to the agreement, upon the death of one of the partners, the surviving partners use the death benefit from the above-mentioned policies to buy the deceased partner's business interest from his or her estate. The surviving partners then own all of the partnership while the deceased partners estate receives the funds from the sale of the deceased partners share of the partnership.

Entity Method

The Entity Method of entering into a buy/sell agreement offers the advantage of simplicity over the Cross-Purchase Method if there are more than two partners or if there is a likelihood of more partners joining the business later. In this scenario, the partnership and each partner enter into a buy/sell agreement. The partnership buys a life insurance policy on each of the partners lives. Pursuant to the buy/sell agreement, upon the death of one of the partners, the partnership uses the death benefit from the above-mentioned policy to purchase the deceased partners business interest from his or her estate. The surviving partners then own all of the partnership while the deceased partners estate receives the funds from the sale of the deceased partners share of the partnership.

Corporation
Cross-Purchase Method

The Cross-Purchase Method of entering into a buy/sell agreement works best if there are a small group of shareholders (preferably two). The shareholders enter into a buy/sell agreement and each shareholder buys a life insurance policy on each of the other shareholders lives. Pursuant to the buy/sell agreement, upon the death of one of the shareholders, the surviving shareholders use the death benefit from the above-mentioned policies to buy the deceased's shareholders business interest from his or her estate. The surviving shareholders will own all of the outstanding corporate stock while the deceased shareholders estate receives the funds from the sale of the deceased shareholders stocks.

Stock Redemption Method

The Stock Redemption Method of entering into a buy/sell agreement offers the advantage of simplicity over the Cross-Purchase Method if the corporation has more than two shareholders or if there is a likelihood that additional shareholders will join the business later. In this scenario, the corporation and each shareholder enter into a buy/sell agreement, and the corporation buys a life insurance policy on each of the shareholders lives. Pursuant to the buy/sell agreement, upon the death of one of the shareholders, the corporation uses the death benefit from the above-mentioned policy to purchase the deceased's shareholders business interest from his or her estate. The surviving shareholders then own all the outstanding corporate stock while the deceased shareholders estate receives the funds from the sale of the deceased shareholders stock.

What is a Buy / Sell Agreement?

A Buy/sell Agreement is a contractual agreement that provides for the continuation of a business in the event of the death or disability of a sole proprietor, partner or shareholder. An agreement may stipulate that, upon the death of a shareholder or partner of a company, the company or other partners buy back the deceased's interest in the business. Life insurance is commonly used to fund buy/sell agreements because it provides both liquidity and tax advantages in funding the transaction.

The following are important reasons to use a funded buy/sell agreement:

• Liquidity -A funded buy/sell agreement creates a market instantly for the deceased's share of the business. Otherwise, if a funded buy/sell agreement were not in place, the purchase of the deceased's stake in the business would have to come out of the company's working capital (if there was enough to fund the purchase). In addition, if an outside party were to purchase the deceased's share, the timing of the transaction could result in a lower valuation of the company because of the death of a key owner and the fact that the deceased's family wants to sell in a potentially soft market.
   
• Transition of Business -A funded buy/sell agreement assists in the efficient preservation and transition of the control and management of the business.
   
• Estate Planning -A funded buy/sell agreement can provide cash for potential estate taxes and settlement costs and establish a valuation of the deceased's business interest for estate tax purposes.
   
• Cost -a funded buy/sell agreement funded with life insurance can be inexpensive (the cost for the purchase of a business is essentially the premiums paid for the life insurance policy).

Life insurance provides a simple way to administer a funding vehicle for the purchase of the deceased's ownership according to the terms of the buy/sell agreement. The business also protects itself from any future drain on working capital, damage to its credit position and/or the legal or financial problems that could arise out of the company's inability to fund the buy/sell agreement with its own income.

Loss of an owner

If you die or become permanently disabled, what will happen to your business? For the sole owner of a new business, this may not be a concern as there is usually little left to continue when the lifeblood of the organization has gone. Still, a sole owner may wish to use corporate dollars to purchase an insurance policy that will provide a value to the business at his or her death.

The most impact, however, occurs when the business has more than one owner. If no planning has been done, owners can suddenly find themselves in business with the spouse or executors of the deceased owner, or with a permanently disabled owner who can no longer contribute skills to the business. The chances of this situation working favourably are minimal at best. To guard against this, the owners should enter into a buy/sell agreement to ensure their interests are protected.

Buy/sell agreements - provide for the transfer of ownership of the business in different circumstances ­ death, disability, retirement or disagreement. At death or disability, for example, the remaining owners may not want to be in business with the deceased owner's heirs or the non-active disabled owner. As well, the heirs or disabled owner may prefer to receive the value of the deceased or disabled owner's share of the business in cash. In addition to covering the loss of an owner, buy/sell agreements can also provide for the transfer of ownership in other situations. If an owner retires, an agreement paves the way for business as usual. If owners have a falling out, a buy/sell agreement will enable the business to continue or be "wound up" in an orderly fashion.

Proper funding - should be in place to ensure that money is available to buy the shares of a deceased or disabled owner, should the need arise. Often, the best and least expensive alternative for buy/sell funding is life insurance.

Our firm can create an effective and efficient funding vehicle to complement your buy/sell agreement. Don't wait until it's too late. Contact us for a free consultation.

Your life insurance coverage begins once the policy has been issued and all of the delivery requirements have been returned to the insurance company. Delivery requirements may include a premium payment, statement of health, delivery acknowledgement form or amendment of application.

Temporary coverage during the underwriting process may also be available with some insurance companies. In cases where temporary coverage (also called conditional coverage) is available, coverage begins once the completed application has been returned to the insurance company with a premium payment and you have completed the medical exam. The coverage is contingent upon you qualifying at the rate you applied for and a few other factors. Read the conditional receipt of your life insurance application for additional information.

The life insurance application process consists of submitting an application and a medical exam to the life insurance company . It may also be necessary for the life insurance company to contact you for a brief telephone interview.

The medical exam can be scheduled at your home or work and is paid for by the life insurance company. The exam typically consists of medical history questions, blood/urine specimen, blood pressure/pulse readings, and height/weight readings. Sometimes additional requirements are necessary, such as an EKG. It is recommended that you schedule your exam early in the morning because test results are often better at this time.

Once we receive your completed life insurance application, it will be submitted to the insurance company. Underwriting usually takes approximately 4-8 weeks. Assuming your life insurance policy is approved, we will send it to you.

The following riders/options/features are available with some life insurance policies:

• Conversion Feature - allows the owner of a term life insurance policy to exchange (or convert) the policy to a permanent life insurance plan (whole life or universal life) without evidence of insurability.
   
• Children's Insurance Option - provides term life insurance coverage on each child of the insured's family.
   
• Waiver of Premium Option - the insurance company will continue to make your life insurance premium payments if you become disabled.
   
• Accidental Death Benefit Option - an additional death benefit will be paid if you die by accidental means.
   
• Guaranteed Purchase Option - guarantees that you may purchase additional life insurance in the future without proof of insurability.

The advantage of level term life insurance is that the premiums remain level over a specified period of time. Yearly renewable term life insurance has a lower initial premium; however, the premium rises each year. Yearly renewable term life insurance is only cost effective for a few years because of the rising premiums. If you need term life insurance protection for more than a few years, then a level term life insurance policy can cost less.

Please carefully consider the length of the level premium period that will suit your needs. For example, if the primary purpose of the death benefit is to provide income to support very young children and/or to fund college education expenses, a 20-year level premium might be appropriate. If these children are already in their young teens, you may need only a 10-year level premium (longer level premium policies are more expensive).