PI Financial Services

Leveraged Insured Annuities

 

This Leveraged Insured Annuity strategy - also known as a "Triple Back-to-Back" - is designed for business owners, and combines a life annuity contract, an insurance policy, and a bank loan. The goal is to:

  1. Increase corporate cash flow today;
  2. Provide access to tax-free corporate funds in the future;
  3. Reduce the capital gains tax liability on the client's shares when he/she dies; and
  4. Maintain the company's working capital and investments.

With the Leveraged Insured Annuity strategy, the corporation purchases both a life insurance policy, and a non-prescribed annuity contract. The corporation borrows money from a bank to replace the funds it used to purchase the annuity and reinvests these funds in the corporation, or repurchases the investments. The corporation also collaterally assigns the life annuity and the life insurance policy as security for the bank loan. The corporation may be able to deduct some or all of the interest on the bank loan, as well as the insurance premiums from its income. Annuity payments received by the corporation are used to pay the interest expense on the loan and the insurance premium. The corporation reinvests any excess cash flow.

When the shareholder dies, the life insurance death benefit is paid directly to the bank to repay the outstanding loan balance. As the policy beneficiary, the corporation receives a credit to its Capital Dividend Account. This allows the corporation to pay a tax-free capital dividend to its shareholder(s).

Who It Works For:

  • You are age 60-75 and in good health.
  • You are an owner of a Canadian Controlled Private Corporation that will continue to operate at least until your death.
  • The corporation has substantial taxable income and invests excess funds in the company's operations or in other corporate investments.
  • You are comfortable with complex planning strategies involving leveraging, and are able to commit to a locked-in arrangement.