April 7, 2022
I also cover this in a YouTube video. Click here to watch!
I’m going to let you in on a little secret about how you can get Critical Illness Insurance coverage completely free.
It starts with my asking you this simple question: if you could purchase an insurance contract and get a guarantee in writing that if you never ended up using the coverage while you are alive – and you could get 100% of your money back, tax-free – would you be interested?
Now who wouldn’t be!
Only 5% of Canadians have Critical Illness coverage, while 85% of Canadians worry about getting a critical illness. 58% of all Canadians have admitted that they would be in financial trouble if they were diagnosed with a critical illness.
So what if I told you there is a better way to get Critical Illness coverage and it doubles as a great strategy for getting money out of your corporation on a tax-free basis.
The strategy that I am referring to is called a “Shared Ownership” Critical Illness policy. It is structured in such a way that your corporation pays a huge part of the premium for the actual Critical Illness coverage and you are paying for both the Return of Premium on Death and the Return of Premium on Surrender.
Here’s how it works
The corporation pays around 60% of the premiums with corporate dollars and you are paying the remaining 40% of the premiums with personal dollars.
If you contracted one of the 25+ covered critical illnesses listed in your policy – and live for at least 30 days – then the policy will payout the benefit. If, however, you have qualified to surrender the policy, you can ask for 100% of your money back. You would get both the corporately paid portion of the premiums, as well as the personally paid portion of the premiums 100% tax-free. This would allow you to pay much of the costs of the premium corporately at a much lower corporate tax rate, but if you remain healthy for a period of time – generally until you stop working or the coverage expires – you can have 100% of all premiums paid repaid to you personally.
So overall, this is a great strategy for getting money out of the corporation tax-free, while simultaneously protecting you and your family in the case you are diagnosed with a critical illness.
Let’s look at a case study
Let’s say you are 42-years-old and you are a successfully incorporated business owner. We’ll assume that you need to get $350,000 of Critical Illness coverage. So, we apply for $350,000 of Critical Illness coverage with a Return of Premium upon Death (ROPD) and a Return of Premium upon Surrender (ROPS) after 15+ years. The total annual premium is $6,100.00
In this example, the corporation would pay for the specific Critical Illness coverage – or $3,700 of the premium per year – and you would pay for the Return of Premium features – or $2,400 of the premium per year.
After 15+ years, you now have choices. You can continue to pay the premiums both corporately and personally, or you can execute the 15+ year surrender clause and ask for 100% of your money back.
In this scenario, you would be 57-years-old at this point. You can continue to pay the premiums, or if you asked for 100% of your money back, you would get 100% of what you paid personally as well as what the corporation paid. All that dough would be coming back to you tax-free.
Both you and the corporation paid $6,100.00 combined, per year, for 15 years… so you can now ask the insurance company to cancel the coverage and send you a personal tax-free cheque in the amount of $91,500.00.
As you can see, this is a great way to get the coverage that you need now, and when you no longer want or need the coverage, you can simply ask for your money back, tax-free.
My team and I design “guaranteed” Critical Illness policies for our clients – either you are going to get a covered critical illness and the policy will pay out, or once the surrender clause kicks in, you can ask for 100% of your money back. You can’t ask for more guarantee than that.
Who benefits from a Shared Ownership Critical Illness Policy?
The company is protected against financial loss and is provided liquidity in the event a shareholder is diagnosed with a critical illness and needs to take time off to recover.
A shareholder will benefit if they remain healthy, do not develop a critical illness, and do not make a claim; they just wait for the surrender clause to kick in and they can collapse the policy, at which point they can ask for 100% of the premiums paid back.
If you’d like to learn more about how you can incorporate a Shared Ownership Critical Illness policy into your own personalized financial & retirement plan, contact me at the coordinates below to apply to become my client. Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.
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By John Moakler, BMath, CFP, CLU
President and Senior Executive Financial Planner
Moakler Wealth Management
1 416 840 8544