Corporate-Owned Life Insurance

Snap has a dedicated corporate-owned life insurance feature that allows you to enter or paste life insurance quotes of the annual Death Benefit, Cash Surrender Value (CSV), Adjusted Cost Basis (ACB), and Annual Premium. The feature then calculates expected future cash flow and tax implications (e.g., premium payments, insurance proceeds upon death, CDA). This can be used to compare different investment strategies that may include the use of corporate-owned life insurance.

There are many reasons a client may purchase life insurance within their corporation. The corporate-owned life insurance feature has been designed with several common use cases in mind. This simplifies the calculations and assumptions to help best address these common use cases. The two main use cases are:

1. Demonstrate the potential benefit of using excess cash in a corporation to purchase permanent life insurance with the Client or Spouse as the insured individual for the policy. This strategy can reduce passive investment income in the corporation, potentially avoiding reductions to the Small Business Deduction (SBD). It may also allow future balances to be distributed from the corporation on a more tax-efficient basis (e.g., through Capital Dividends). To ensure that your plans are only comparing differences in investment strategies, both scenarios should select the Winding-up Disposition Method.
2. Demonstrate how corporate-owned life insurance could help provide retirement income. This may be done through borrowing against the Cash Surrender Value (CSV) during the insured individual's life, or through the use of the Death Benefit to provide income to the surviving partner.

The corporate-owned life insurance feature isn't currently intended to model the following potential use cases:

1. Purchasing term life insurance to cover the costs to the corporation if an individual passes away (e.g., to buy out their shares, to replace them).
2. Purchasing life insurance where the insured individual is anyone not included in the projection.
3. Modelling the transfer of the corporation to a surviving beneficiary. The assumption in the corporate disposition on death is that the corporation is disposed of and all cash is distributed to the client's final estate.

If these apply to your client, please let us know so we can prioritize future enhancements to this functionality.

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Select the corporation that owns the insurance policy, then click Scenario Setup -> Insurance.

Select Add Insurance Policy.

Note: If you receive the following message, you'll need to change your Disposition Method.

Go to Scenario Setup -> Corporation and select Winding-Up for the Method.

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Enter a Description and select Whole Life or Universal Life as the policy Type. You can select either the Client or the Spouse as the person who is Insured.

Under Coverage From Age, you can update the default starting age which is the age the individual reaches by the end of the plan's first year. You can enter a new age, or select the gear icon (visible only when your mouse is over that cell) to enter a specific year, month, and day that coverage starts (if it's a new policy) or started (if it's an existing policy).

The Death Benefit and Annual Premium are not displayed under the Insurance Policies table because they typically change over time. To enter, view, or edit these values, click Edit under either column.

This brings up a pop-up table where you can enter the details or copy and paste them from another table (e.g., Excel).

Universal Life (UL) policies have a check box above this table to "Include cash surrender value in death benefit". Checking this box will add the CSV to the Death Benefit and pay both out to the beneficiary upon the insured’s death.

The Beneficiaries of the policy default to 100% Corporation. This setting can't currently be changed. Please see the use cases section for more details. If you have a case that requires a different setting please let our team know.

You can record additional details about the policy such as renewal provisions or convertibility options in the Notes section by selecting the page icon under Actions. These notes are only displayed on this data entry screen. Notes for your clients can be added to the Comments section of the Insurance section of the Client Report.

To delete the policy, click the trash can icon under Actions.

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Corporate Planning page

Once the policy has been entered, select Planning Pages to return to the projection where the Death Benefit, CSV, and Premium will be displayed under the Insurance section of the Corporate Planning page.

The annual insurance premium is subtracted from the corporation's cash flow each year.

The CSV is included in the corporate Net Worth value, while the Death Benefit is included in the After-Tax Estate/Market Value of the corporation.

The Net Worth and After-Tax Estate/Market Value tables can be viewed for any year by clicking the value under the appropriate column in that year.

The insurance proceeds for corporate-owned life insurance are included in the Corporations value in each year's Estate Summary table accessible from the Personal Planning page.

Personal Planning page

Click the value in any given year under Net Worth or Estate Before Tax to view the Net Worth Summary and Estate Summary tables for that year.

The Insurance CSV and Insurance Proceeds in the Estate Summary table represent personally held life insurance policies only.

Client Report

The corporate-owned insurance policies are also available with their details in the Client Report.

In the Gallery, select the pages to include. The Insurance Policies page can be found under the corporation.

Here is a preview of the Insurance Policies page.

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The Death Benefit, CSV, ACB, and Premiums are all used throughout Snap as inputs to calculations.

The Premiums (as mentioned above) reduce the corporation's annual cash flow.

The CSV is added to the Net Worth of the corporation and is included as part of the corporation's Market Value calculation at the time of the final estate to determine any capital gain taxes payable by the estate.

The ACB determines how much Capital Dividend Account (CDA) to add when the life insurance proceeds are received. The CDA increases by the Death Benefit less the ACB of the insurance policy in the year of death.

The Death Benefit is received by the corporation after the Insured's death in the projection. If this is the first death, then the cash will be available for distribution to the surviving shareholder. If this is the second death, then the cash will be distributed to the final estate as part of the corporate disposition on death.

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