FOR ADVISOR USE ONLY FLEXIBILITY. for business clients: SunUniversalLife II. Level insurance amount plus ACB. Life s brighter under the sun

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1 FOR ADVISOR USE ONLY FLEXIBILITY for business clients: SunUniversalLife II Level insurance amount plus ACB Life s brighter under the sun

2 Help business clients understand the value that corporately-owned life insurance can bring to their business. SunUniversalLife II with the Level insurance amount plus adjusted cost basis (ACB) death benefit option can help business owners maximize shareholder value and meet their long-term business planning needs. Client profile: 99Healthy business owners with incorporated small-medium sized businesses (not sole proprietors) who have a corporate life insurance need. 99Want payment flexibility and the opportunity to take advantage of tax-preferred growth within their universal life insurance policy. 9 9 Want to optimize the amount of money passed to surviving shareholders at death.

3 SunUniversalLife II Tax planning for business owners: the basics Business owners work hard to build the value of their corporation and want to ensure their legacy can thrive after they re gone. Life insurance can play a critical role in ensuring the continued success of the business. It can also help business owners maximize the value of the business at death for the surviving shareholders. One of the key tax-planning tools for business owners is available through the use of the capital dividend account (CDA). Generally, if a corporation owns and is the beneficiary of a life insurance policy, and the insured dies, the corporation receives the benefit tax free. Whether the corporation can pay all or part of the death benefit tax free to its shareholders depends on its CDA. The CDA tracks tax-free items the company has received, which it can pay to its shareholders by declaring a capital dividend. Shareholders don t pay tax on capital dividends. The process of declaring a tax-free capital dividend can be complex, so business owners need to work with their professional tax advisors to make sure it s done properly. For life insurance policy death benefits, only the death benefit minus the policy s adjusted cost basis (ACB) at death can be posted to the company s CDA. The ACB of a corporate-owned life insurance policy is very important in determining how much of the total death benefit can be paid tax free to a company s shareholders. In general, the ACB of the policy is increased by payments made to the policy and decreased by the net cost of pure insurance (NCPI). The NCPI is an actuarial calculation that measures the annual cost of the mortality risk of the insured for tax purposes. The lower the ACB, the higher the CDA credit and the more that can be passed tax free to the corporation s shareholders at death. Over time, the ACB of the policy will typically decrease to zero. However, in the early policy years, the ACB can remain quite high, potentially reducing the amount eligible to be credited to the corporation s CDA and the tax-free amount available to the surviving shareholders.

4 More options for business owners To provide corporate clients with additional planning options, SunUniversalLife II offers business owners a Level insurance amount plus ACB death benefit option. With this option, the death benefit is equal to the initial insurance amount plus the ACB of the policy. The insurance amount is adjusted to reflect changes in the ACB of the policy. Initially, the policy s ACB will increase, resulting in an increasing death benefit. Over time as the NCPI becomes greater than payments made to the policy, the ACB will begin to decrease. The death benefit of the policy will reflect these decreases. Once the ACB of the policy reaches zero, the death benefit will be equal to the greater of the policy s fund value and the initial insurance amount. This death benefit option ensures the corporation will always be able to credit the CDA with an amount that s at least equal to the initial insurance amount. The corporation can then pay a tax-free dividend to the surviving shareholders for the amount equal to the balance in the CDA. The corporation can also pay the amount of death benefit that s greater than the amount credited to the CDA to the surviving shareholders as a taxable dividend. Level insurance amount plus ACB: the benefits Harold, age 45, is a successful business owner of the XYZ Corporation with a permanent $1 million corporate life insurance need. The flexibility available with universal life appeals to Harold. XYZ Corporation purchases a SunUniversalLife II policy on Harold s life. The cost of insurance option is yearly renewable term to age 85 and the death benefit option is Level insurance amount plus adjusted cost basis. The corporation pays $11,000 annually to the policy to age 85 and assumes a 3% rate of return.

5 SunUniversalLife II SunUniversalLife II with Level + ACB death benefit $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $ YEAR Death benefit Cash surrender value Net to shareholder Policy ACB CDA credit SunUniversalLife II with the Level plus ACB death benefit option provides Harold and the XYZ Corporation with the following benefits: 99Immediate protection for the XYZ Corporation against Harold s death. 99The opportunity for the XYZ Corporation to take advantage of greater universal life funding opportunities. 99At Harold s death, the death benefit will be paid tax-free to the corporation. With the Level plus ACB death benefit structure, the CDA credit generated will always be at least equal to the initial insurance amount, potentially increasing the tax-free amount that can be paid to the surviving shareholders. 99The level death benefit structure creates the potential for a more stable tax-free death benefit when compared to an insurance amount plus policy fund structure. It may also result in a more stable CDA credit amount.

6 Demonstrate your value to incorporated business clients and discuss how SunUniversalLife II with the Level plus ACB death benefit option can benefit them. To learn more about SunUniversalLife II, visit the advisor website. To explore how you can grow your business, talk to your Sun Life Sales Director. All charts have been prepared for illustrative purposes only. Sun Life Assurance Company of Canada does not provide legal, accounting, taxation or other professional advice to advisors or their clients. Before you act on any of this information on behalf of a client, always have the client seek advice from a qualified professional including a thorough examination of the client s specific legal/tax situation, and a detailed analysis of the relevant sections of the Income Tax Act (Canada) and related regulations. Life s brighter under the sun Sun Life Assurance Company of Canada is a member of the Sun Life Financial group of companies. Sun Life Assurance Company of Canada,