Borrow against the policy, or sell the corporation's shares?
Both routes must put the same amount in the shareholder's hands. Loan proceeds are not income, so the full draw arrives untaxed. A dividend has to survive corporate tax on the gain that funded it and then personal tax on the way out, so the company must part with far more. Run it with your own numbers.
Both scenarios
Policy cash value / portfolio
Sets the bracket the dividend stacks on
A · Collateral loan
Charged by the company for the pledge
Capitalised, never paid in cash
Net of the cost of insurance
Never falls below the cash value
The part that does not credit the CDA
B · Corporate portfolio
Rebalancing realises gains early
Drawing $150,000 a year is 7.5% of the starting value. Above about 6%, both routes run dry inside a normal lifetime — that is the draw rate talking, not the strategy.
A · Collateral loan
- Years fully funded
- 12 / 30
- Total received
- $1,915,658
- To the family after tax
- −$566,929
policy collapses at 77
B · Corporate portfolio
- Years fully funded
- 15 / 30
- Total received
- $2,345,695
- To the family after tax
- $0
portfolio runs out at 76
On these assumptions neither route reaches age 90. Lower the annual draw before comparing which one wins — right now the answer is "neither".
| Age | Cash value | Loan | LTV | A draw | Portfolio | Gross div. | B draw |
|---|---|---|---|---|---|---|---|
| 61 | $2,090,000 | $150,000 | 7% | $150,000 | $1,914,246 | $191,799 | $150,000 |
| 62 | $2,184,050 | $312,000 | 14% | $150,000 | $1,824,590 | $191,799 | $150,000 |
| 63 | $2,282,332 | $486,960 | 21% | $150,000 | $1,730,603 | $191,799 | $150,000 |
| 64 | $2,385,037 | $675,917 | 28% | $150,000 | $1,631,862 | $191,799 | $150,000 |
| 65 | $2,492,364 | $879,990 | 35% | $150,000 | $1,527,948 | $191,799 | $150,000 |
| 66 | $2,604,520 | $1,100,389 | 42% | $150,000 | $1,418,438 | $191,799 | $150,000 |
| 67 | $2,721,724 | $1,338,421 | 49% | $150,000 | $1,302,904 | $191,799 | $150,000 |
| 68 | $2,844,201 | $1,595,494 | 56% | $150,000 | $1,180,909 | $191,799 | $150,000 |
| 69 | $2,972,190 | $1,873,134 | 63% | $150,000 | $1,052,004 | $191,799 | $150,000 |
| 70 | $3,105,939 | $2,172,984 | 70% | $150,000 | $915,724 | $191,799 | $150,000 |
| 71 | $3,245,706 | $2,496,823 | 77% | $150,000 | $771,586 | $191,799 | $150,000 |
| 72 | $3,391,763 | $2,846,569 | 84% | $150,000 | $619,085 | $191,799 | $150,000 |
| 73 | $3,544,392 | $3,189,953 | 90% | $115,658 | $457,688 | $191,799 | $150,000 |
| 74 | $3,703,890 | $3,445,149 | 93% | $0 | $286,830 | $191,799 | $150,000 |
| 75 | $3,870,565 | $3,720,761 | 96% | $0 | $105,890 | $191,799 | $150,000 |
| 76 | $4,044,740 | $4,018,422 | 99% | $0 | $7,754 | $191,799 | $87,775 |
| 77 | $4,226,754 | $4,339,896 | 103% | $0 | $732 | $191,799 | $7,172 |
| 78 | $4,416,958 | $4,687,087 | 106% | $0 | $67 | $191,799 | $679 |
| 79 | $4,615,721 | $5,062,054 | 110% | $0 | $6 | $191,799 | $63 |
| 80 | $4,823,428 | $5,467,019 | 113% | $0 | $1 | $191,799 | $6 |
| 81 | $5,040,482 | $5,904,380 | 117% | $0 | $0 | $0 | $1 |
| 82 | $5,267,304 | $6,376,731 | 121% | $0 | $0 | $0 | $0 |
| 83 | $5,504,333 | $6,886,869 | 125% | $0 | $0 | $0 | $0 |
| 84 | $5,752,028 | $7,437,819 | 129% | $0 | $0 | $0 | $0 |
| 85 | $6,010,869 | $8,032,844 | 134% | $0 | $0 | $0 | $0 |
| 86 | $6,281,358 | $8,675,472 | 138% | $0 | $0 | $0 | $0 |
| 87 | $6,564,019 | $9,369,510 | 143% | $0 | $0 | $0 | $0 |
| 88 | $6,859,400 | $10,119,070 | 148% | $0 | $0 | $0 | $0 |
| 89 | $7,168,073 | $10,928,596 | 152% | $0 | $0 | $0 | $0 |
| 90 | $7,490,636 | $11,802,884 | 158% | $0 | $0 | $0 | $0 |
What this does not model
The estate figures assume the corporation is liquidated and distributed: gains realised and taxed inside the company, capital dividend account paid out tax-free, the remainder paid as non-eligible dividends. Pipeline planning and the 50% solution both beat this and are not modelled, so both estate numbers are conservative — the comparison between them stays fair.
Also excluded: the small-business deduction grind on passive income over $50,000 (which costs the portfolio real money, so scenario B is flattered here), alternative minimum tax, and any technical or GAAR risk in the structure itself. The cash value growth rate is treated as net of the cost of insurance.
This illustrates mechanics using the assumptions you enter. It is not a projection of what any real policy or account will do, and it is not tax or financial advice. Actual outcomes depend on the policy contract, the lender's terms, your tax position and the market environment at the time. Verify with a licensed advisor and your accountant.