From liability to asset: Tapping the potential of insurance to maximize wealth

financialpost.com:

By Joelle Hall

Now that the new capital gains legislation has passed, many Canadians — especially small-business owners and incorporated professionals — are looking for ways to optimize their tax strategies, and one way to do that is by considering the role of insurance in financial planning.

For many business owners, it’s difficult to see insurance as anything more than a protection against liabilities, a sunk cost that will only be paid out in the event of an accident or illness. It may seem counterintuitive to think of insurance as an investment vehicle, but it is one of the best tools available for business owners and incorporated professionals to generate and maximize wealth.

For corporations, the capital gains inclusion rate increased to two-thirds from one-half. In light of this, strategies such as life insurance emerge as an increasingly attractive option for wealth preservation and transfer.

Wealth advisers often encourage clients with excess assets to invest in a permanent life insurance policy. Not only do these policies offer a tax-advantaged account that grows tax free, but they also allow for the eventual tax-free distribution of funds to shareholders and beneficiaries through the capital dividend account.

But the strategic incorporation of life insurance into wealth management is just the beginning. Viewing insurance as a distinct asset class is essential for business owners crafting a robust financial strategy. This shift in perspective reveals insurance’s dual role as both a protector of wealth and a contributor to financial growth.

Beyond serving as a wealth accumulation tool, insurance also serves as a fundamental risk mitigation strategy for business owners. Ensuring that proper policies are in place