Shared Ownership Critical Illness
Shared Ownership allows multiple parties to have an interest in an insurance policy. Typically, the corporation is the owner and beneficiary of the death benefit, while the shareholder or employee owns the policy's cash value. This strategy also applies to Critical Illness (CI) policies, which, although they do not have a cash value, often include a Return of Premium (ROP) option. This means that if no claim is made, the premiums are refunded upon death, termination, or surrender of the policy. This arrangement is ideal for shareholders wanting to protect their corporation from the financial impact of a critical illness diagnosis of a key employee or shareholder.
How Shared Ownership
Works and Benefits
​In a Shared Ownership Agreement, the corporation owns, pays for, and is the beneficiary of the CI coverage, while the shareholder owns and pays for the Return of Premium (ROP) option. This setup ensures that the company is safeguarded against loss due to critical illness, and if no critical illness occurs, the shareholder receives a financial benefit as premiums are refunded. For example, John applied for a $500,000 CI policy with an ROP benefit. The total annual premium was $9,131, with the corporation paying $7,003 and John paying $2,128. After 20 years, John's company cancels the policy, and John receives a tax-free refund of $182,620, from the ROP option. This strategy provides significant financial benefits to the shareholder while protecting the corporation.