Case Study: Why Entrepreneurs Should Get Serious About Mitigating Risk Through Insurance
By Tim Leonard & Laura Fitzsimons
Entrepreneurs are constantly seeking ways to invest in their businesses and their financial futures. While there are a variety of investment opportunities available, insurance is often overlooked as a viable option. What many entrepreneurs don’t realize is that insurance can actually serve as an investment in and of itself, providing a valuable asset that can safeguard their businesses and personal finances in the face of unexpected events.
In this article, we’ll explore a case study of a recent client we helped that highlights the importance of insurance for entrepreneurs, and how it can be used as an investment tool for long-term wealth.
In this case, the Lifecycle Wealth team worked with a married couple in their late 40s, Sean and Gabriella, (1) who were referred to us by a mutual client. Sean owns his own business, and Gabriella is an executive healthcare provider for a Canadian company. They have three children, ages 6, 9, and 11.
Note: This opportunity applies to dual income families who make more than $500,000 of business income, plus more than $150,000 of wages and have at least $1,000,000 of savings in their corporation.
During the initial call, Sean was immediately intrigued. He had always wondered about how insurance could be utilized not just as a risk mitigation strategy, but also as an investment to help fund his family’s lifestyle.
Like many of our clients, Sean and Gabriella are a successful couple who have worked hard in their careers and saved diligently for years. They are already financially successful but were looking for advice about how to address inflation, recession concerns, higher interest rates, and higher taxes. They were also very interested in leaving a legacy for their children.
From our first 30-minute complimentary call, they were very interested in a Lifecycle Wealth Plan to help address questions about retirement savings and insurance needs. Gabriella was covered with a good company pension plan as an executive in a larger company, but Sean didn’t have anything set up. He wanted to use his corporate savings to build his own pension plan for retirement.
How We Helped
This couple is a great example of what many families face. It’s easy to feel overwhelmed when you have multiple goals with different timelines. Sean and Gabriella wanted to be as tax-smart as possible at every stage of life but really didn’t know where to start.
After reviewing their financial statements, including Sean’s corporate financial statements and tax returns, mortgage details on their new home and rental property, personal tax returns, and investment accounts, we realized we could recommend a strategy that might favourably treat the interest component of their mortgage and the taxes incurred by their investment income.
First, we worked together with various financial professionals, including a tax advisor in our circle of influence, the couple’s CPA, and their lawyer, to structure a holding company to protect the assets of the family wealth and avoid the clawback of the small business deduction. The business no longer has excess passive income, which allowed Sean to pay less in taxes.
This restructuring also allowed Sean and Gabriella to make their home mortgage interest more favourably treated from a tax perspective. We then showed them how to invest their savings in less volatile assets that produce monthly income.
Next, we reviewed their insurance needs and educated Sean and Gabriella about disability, critical illness, and life insurance. They purchased two permanent life insurance policies through Sean’s business, which will be paid up in 10 years. These policies are very important for final expenses and taxes as well as leaving a legacy for their three children.
Lastly, we developed an investment strategy that will help Sean and Gabriella accomplish their financial goals both now and throughout retirement. With our help, they now have:
A tax-efficient fund for their home mortgage payments
We recommended investments to satisfy a capital gains objective.
Tax-free corporate income to fund their corporate-owned life insurance, invested in less volatile investments
A diversified investment portfolio beyond cash, stocks, and mutual funds
Through our planning process, we helped Sean and Gabriella accomplish their overall goal of tax efficiency and leaving a legacy for their family.
The tax-deductibility of their mortgage could potentially save them tens of thousands of dollars in annual cash flow in the family holding company.
Sean can now save all his business income to build his own pension plan over the next 10 years and have the flexibility to work at an easier and slower pace.
In 10 years, their guaranteed life insurance plans will be fully funded, which means they will have this additional cash to spend as tax-free dividends or invest each year to grow their retirement portfolio.
We work with a diverse range of business owners facing unique needs and situations. Whatever the situation, we are here to tackle them through a proactive process that focuses on understanding your personal circumstances, addressing your concerns or fears, and creating strategies designed to help you achieve your goals.
If you’re experiencing a similar situation or face an entirely different need, we encourage you to reach out to us. A 10-minute call can give you a lifetime of savings. Contact Tim at email@example.com and Laura at firstname.lastname@example.org or call us at 416-577-6277.
Tim Leonard is an investment advisor at Mandeville Private Client Inc., providing private and alternative fund solutions in addition to public investments to high-net-worth professionals and business owners in Ontario, Canada. Tim uses his over 40 years of experience to develop and implement the Lifecycle Wealth Plan, using appropriate and customized investment tools to help business owners create more wealth by paying less tax at each stage of life. His desire is to see his clients save tax, fund their lifestyle, and build their legacy—all through proactive planning. Tim and the Lifecycle Wealth team specialize in understanding the various tax rules exclusive to business owners and building a plan with both standard and unique investment, insurance, and personal financing products tailored to their needs, goals, and situations. Tim wants his clients to sleep better at night, knowing they’re on the right path and have a team of professionals advocating for them no matter what comes their way.
Tim has a Bachelor of Arts from Western University and a degree in commerce, accounting, and finance from the University of Windsor. While his favorite thing to do is help people excel financially, Tim also enjoys a good game of golf. He’s a member of the Whistle Bear Golf Club and is the chair of the Stratford Chefs School’s finance committee. To learn more about Tim, connect with him on LinkedIn.
Laura Fitzsimons is an Insurance Advisor at Lifecycle Wealth, a firm providing proprietary insurance solutions to high net worth professionals and business owners in Ontario, Canada. With over 35 years of experience and Top of the Table MDRT Member*, Laura is passionate about helping affluent Canadians keep more of what they’ve earned so they can spend their money how they want. Laura and her team do this through the Lifecycle Wealth Plan, implementing innovative tax-minimization strategies tailored to each client’s individual needs and circumstances. By working with other professionals and integrating wealth management, risk management, and personal financial planning, Laura strives to help her clients reduce their tax exposure in every stage of life, grow their business, and enhance their lifestyle.
Laura loves empowering her clients with the solutions and ideas that allow them to spend their time and money on what’s most important to them. Outside of work, Laura enjoys live music, staying active, and spending time with friends and family. To learn more about Laura, connect with her on LinkedIn.
*This is to certify that Laura Fitzsimons, having fulfilled all the requirements of the Bylaws for membership in the 2023 Million Dollar Round Table and in consequence whereof, is entitled to all privileges that thereto pertain, including the use of the insignia.
This publication contains the opinion of the writer. The information contained herein was obtained from sources believed to be reliable, but no representation or warranty, express or implied, is made by the writer, Mandeville or any other person as to its accuracy, completeness or correctness. This publication is not an offer to sell or a solicitation of an offer to buy any securities. The information in this publication is intended for informational purposes only and is not intended to constitute investment, financial, legal, tax or accounting advice. Many factors unknown to us may affect the applicability of any statement or comment made in this publication to your particular circumstances. Hence, you should not rely on the information in this publication for investment, financial, legal tax or accounting advice. You should consult your financial advisor or other professionals before acting on any information in this communication.
The numbers in this case study are fictitious and used for illustrative purposes and not indicative of actual results. This is not an offer to sell or a solicitation of an offer to buy any securities or insurance products. The information in this publication is intended for informational purposes only and is not intended to constitute investment, financial, insurance, legal, tax or accounting advice. Many factors unknown to us may affect the applicability of any statement or comment made in this case study to your particular circumstances. Hence, you should not rely on the information in this case study for investment, financial, insurance, legal tax or accounting advice. You should consult your financial advisor or other professionals before acting on any information in this communication. Commissions, trailing commissions, management fees and expenses all may be associated with investments. Please read the offering documents before investing. Investments are not guaranteed, their values change frequently and past performance may not be repeated.
(1) Names changed to protect confidentiality.