Case studies

Real situations families and business owners face, and how a plan solves them

Five common stories. See which one sounds like you.

These are illustrative examples based on situations families and business owners commonly face. They are not real clients, and names and numbers are invented. Your results will depend on your own situation.
Case 1 · Idle corporate cash

A 46-year-old dentist with $400,000 sitting in her holding company

The challenge

Dr. L's practice earns more than she spends, so cash keeps piling up in her holding company. The investment income is taxed at about 50%, and it is getting close to the $50,000 limit that would start shrinking her small business tax rate. She wants to leave more to her two children.

What we did

Her holding company bought a corporately owned participating whole life policy, paid over 10 years using surplus cash. The company owns the policy and is the beneficiary.

The result

The money now grows without yearly tax and doesn't count toward her passive income limit. She can borrow against it in retirement. At death, most of the benefit can go to her children tax-free through the capital dividend account.

Case 2 · Partners with no plan

Two partners in a $3 million HVAC company with no buy-sell agreement

The challenge

T and K each own half of the company. If one of them died, the other would end up in business with the late partner's spouse, who would want cash the company doesn't have. Neither had a will that dealt with their shares.

What we did

Their lawyer drafted a buy-sell agreement with a set price formula. The company bought a corporately owned policy on each partner to fund it. Each partner also signed a secondary will for his company shares.

The result

If one partner dies, the company receives tax-free money to buy back his shares. His family gets cash, and the surviving partner keeps control. The secondary wills can save about $22,500 in probate tax on each partner's $1.5 million of shares.

Case 3 · Illness

A 52-year-old restaurant owner who couldn't work for eight months

The challenge

Mrs. N runs two restaurants with 18 staff. She worried about what would happen if she got sick. Rent, payroll and suppliers would still need to be paid, and there was no one else to run the business.

What we did

We set up $250,000 of 10-year critical illness coverage with a return of premium, plus business overhead insurance to cover up to $15,000 a month in business expenses.

The result

Two years later she was diagnosed with breast cancer. The $250,000 lump sum paid for a manager and her recovery, and the overhead coverage paid rent and staff while she was off. Both restaurants stayed open. Had she stayed healthy for 10 years, all her critical illness premiums would have been refunded.

Case 4 · Growth and protection

A 50-year-old manufacturer who needed coverage and cash to expand

The challenge

Mr. V needed permanent life insurance to cover the tax on his shares at death. But every dollar of his company's cash was going into new equipment, and he didn't want to slow down the business.

What we did

We set up an Immediate Financing Arrangement. His company pays a $100,000 premium each year, then borrows the same amount back from a lender's line of credit, using the policy as security, and puts it into equipment.

The result

He has the protection he needs and his cash stays in the business. Because the money is used to earn business income, the interest is generally tax-deductible. At death, the loan is repaid from the death benefit, and the rest can flow to his family through the capital dividend account.

Case 5 · A young family

A couple in their 30s with two young kids and a new mortgage

The challenge

D and H had just bought their first home with a $600,000 mortgage. Their only life insurance was the group plan at work, about two times salary, and it would end if they changed jobs. Neither had a will.

What we did

We set up 20-year term life on each of them to pay off the mortgage and replace income, plus critical illness coverage. We added a small whole life policy for each child, and they signed wills and powers of attorney with our lawyer, naming a guardian for the kids.

The result

If either parent dies, the mortgage is paid off and the family can stay in their home. A serious illness won't drain their savings. The children have lifelong coverage at today's rates, with cash value they can use later for school or a first home.

Does one of these sound like you?

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Illustrative examples only. Tax results depend on proper setup with your accountant and lawyer. Insurance is subject to underwriting, lending is subject to lender approval, and dividends and non-guaranteed values are not guaranteed.

Johnny Dao is a licensed life insurance agent in Ontario, FSRA licence #17156761. Insurance products are offered through The Gryphin Advantage Inc.

Legal and accounting services are provided independently by the professionals named on this site. This website is general information only and is not legal, tax or investment advice. Insurance is subject to underwriting and the terms of each policy.