Personal Finance

Participating policy for self employed individuals

  • Last Updated:
  • Dec 5th, 2022 11:48 pm
[OP]
Newbie
Jun 3, 2019
80 posts
33 upvotes

Participating policy for self employed individuals

Hello,

For self employed individuals, our financial planner has advised my husband to pay $5000 per month from his corporation for 15 number of years and the money will compound at 6 percent annually. We can take out 90 percent of what's compounded at any time after the first year. There's no penalty for not contributing for a certain period. I believe this policy is for 20 years from SunLife.

Anyone have experience with this? I want to hear others experiences before committing to this?

Also, the planner suggested a similar policy for the kids, that we contribute $500 per child per month and over 15-20 years , it will accumulate and be like a bank they can withdraw from. (Kids can withdraw from it for school to top up their education loans, use for mortgage etc. )

Thoughts on either are welcome!
8 replies
Deal Expert
User avatar
Dec 12, 2009
25623 posts
15483 upvotes
Toronto
Life insurance should be bought to safeguard against a major loss that you cannot afford. Otherwise it is foolish to treat life insurance as an investment which is what this financial planner is suggesting. I would fire the financial advisor and move on. BTW, does this advisor have any skin in the insurance sales business?
Koodo $40/6GB
Public Mobile $40/15GB, $35/20GB, lot less with rewards
Tangerine Bank, EQ Bank, Simplii
Deal Addict
May 31, 2018
1145 posts
2878 upvotes
Is this $5000/month to be paid directly to SunLife from the corp?

Here is a quick blurb on corporation whole life insurance for a shareholder...

A corporation can be a beneficiary of a life insurance policy. This generally allows the corporation to pay the premiums for that policy and collect proceeds upon the death of the covered person. In most cases, the premiums are not deductible but they can still be financed by corporate dollars, which is better than using after-tax personal dollars. Once the insurance proceeds are received, they are not taxable to the corporation and an equivalent amount (net of any adjusted cost basis) is added to the company’s capital dividend account which can then be paid out tax free to shareholders as a capital dividend. The adjusted cost basis of the policy is determined by the insurance company and is calculated by subtracting the annual pure cost of the life insurance from the premiums paid.

Seems like a good way to not have to pay tax on the money used for the premiums.

However, being that they're trying to sell you a Participating Policy it will probably get very complicated (tax wise) very quickly, and there will definitely be tax implications from anything you "take out 90 percent of what's compounded at any time after the first year" if you plan on using it personally. I'm guessing the financial planner isn't too astute when it comes to corp/personal tax interaction, so it would be best to get your accountant's perspective on the tax liability of any withdrawals if you move forward.
Deal Addict
May 31, 2018
1145 posts
2878 upvotes
AnnCook wrote: Also, the planner suggested a similar policy for the kids, that we contribute $500 per child per month and over 15-20 years , it will accumulate and be like a bank they can withdraw from. (Kids can withdraw from it for school to top up their education loans, use for mortgage etc. )

Thoughts on either are welcome!
Have you maxed out the kid's RESP? That is Step 1.

Step 2 is to ignore salespeople that try to sell you life insurance on your kids.

Step 3 is to understand most "financial planners (advisors)" are actually salespeople, and are more interested in selling than planning (advising). This is also Step 1.
Deal Guru
User avatar
Oct 16, 2008
10168 posts
4435 upvotes
Vaughan
^^^ +1, good steps, I like step 3 ^^^
...
[OP]
Newbie
Jun 3, 2019
80 posts
33 upvotes
Hello, Thanks for your response. The financial planner has said that, we can withdraw from the accumulated amount at any point after 1 year, upto 90% of that amount. It will be tax-free. All we will have to keep paying is the interest rate. They explained it like creating your own bank account where you can withdraw money from. If you replace the money, at the end of the term there will be a larger amount to withdraw from. Yes, the corporation will be paying Sun Life directly.
[OP]
Newbie
Jun 3, 2019
80 posts
33 upvotes
FarmerHarv wrote: Have you maxed out the kid's RESP? That is Step 1.

Step 2 is to ignore salespeople that try to sell you life insurance on your kids.

Step 3 is to understand most "financial planners (advisors)" are actually salespeople, and are more interested in selling than planning (advising). This is also Step 1.
Thanks for sharing. No I havent maxed out our RESP's yet. Again the same concept was explained re life insurance for kids. We pay X amount for both kids, after 15 years, it will amount to quite a lot. Kids can withdraw from it if required for university, travel, first mortgage etc. The benefit of setting this up would be that the kids dip into this policy instead of "helping out" from our retirement funds.
Deal Addict
May 31, 2018
1145 posts
2878 upvotes
Ah, ok, that clarifies things. I would never speak to this “financial planner” again and would find someone who isn’t just looking to pad their own pocket by selling unsuitable insurance policies in the guise of “bank accounts” and investments to people.

That’s just me though. I despise these (un)regulated “advisors” and see them as nothing more than smooth talking parasitic snake oil salesmen.

YMMV of course.
Deal Addict
Mar 3, 2009
1729 posts
1042 upvotes
Ottawa, ON
FarmerHarv wrote: Ah, ok, that clarifies things. I would never speak to this “financial planner” again and would find someone who isn’t just looking to pad their own pocket by selling unsuitable insurance policies in the guise of “bank accounts” and investments to people.

That’s just me though. I despise these (un)regulated “advisors” and see them as nothing more than smooth talking parasitic snake oil salesmen.

YMMV of course.
It's not just you, but the OP seems to have fallen for it hook, line, and sinker - even after the warnings here.

What surprised me is that they did not even realize it was an insurance policy.

I would offer - if it's too good to be true it probably is - but I may be wasting my bandwidth.

Top