You may invest your business surplus cash in GICs, mutual funds, bonds, stocks or other taxable investments. These taxable investments may not be the business’s best investment option due to the very high corporate tax rate on passive income.

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If you have already considered the life insurance needs for key-person insurance, business loan protection, capital gain tax liability, or some other business insurance, then the life insurance policy could also be used as a vehicle for investing the company’s excess cash.

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A life insurance policy allows for tax-deferred growth of the cash surrender value and tax-free receipt of the proceeds at death. A significant cash surrender value can be accumulated on a tax-deferred basis if the business deposits the maximum amount permitted by the Income Tax Act into the exempt policy. The deposits can remain within the policy on a tax-sheltered basis and pay for the cost of insurance and expenses in the future.

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If the corporation or shareholder needs access to the cash in the future, the policy’s cash surrender value can be accessed through a collateral loan secured against the insurance policy.

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