Life insurance products have always been an integral part of any proper financial/estate planning process. From term insurance, to Whole Life, to Universal Life, insurance provides coverage in the event of a tragedy to ensure that your needs are met, and that family members can continue without hardships. However, over the past several years, many products have focused on the investment opportunities they present, and insurance companies are dedicating more and more resources to support the growing demand for these high level concepts. For more information about basic types of life insurance and their uses within a basic financial/estate plan, please visit our Estate Planning section within our Education Centre.

TOP

Tax-exempt insurance

Two products in particular, Universal Life and Whole Life, are designed to meet long-term needs by taking advantage of allowances by the government for cash accumulation on a tax-exempt basis. Basically, you pay more than the actual cost for the coverage, and the excess money is invested within the structure of the plan. What's more, that money is not taxed annually as it grows. The design and function of the two products is quite different - they appeal to individuals with different risk profiles, personalities, and investment styles - but their purpose is the same: to maximize the value of your estate. Not only can tax-exempt life insurance cover your estate needs, it can be a significant asset within your overall portfolio.

TOP

A solution to your personal needs

Here are some of the benefits for individuals who utilize insurance strategies:

Estate Conservation and Creation
You can offset the costs that are incurred at death and preserve your estate by having the insurance proceeds pay them for you. Taxes, liabilities, estate-related and other future costs can all be offset by your permanent coverage.

Tax Minimization
Tax-exempt insurance can eliminate the annual taxes you pay on your investment growth, as well as those payable when you die. Individuals tired of being punished for strong earnings may appreciate such an opportunity.

Estate Maximization
By taking advantage of the tax-preferred status of Universal Life or Whole Life, individuals can maximize the value of assets they plan to pass on to the next generation. The long-term value of these products can often far eclipse what would otherwise be earned through regular investing.

Income Enhancement
Certain products can provide a supplemental stream of income during retirement. The net income derived from this strategy may be significantly higher than what is achievable with traditional fixed income vehicles, especially during times of low interest rates.

TOP

A solution to your business needs

Some of the best opportunities for small corporations, including holding companies, come from using tax-exempt life insurance. It is a tax-efficient means to get money out of a corporation into the hands of the next generation when you pass away. Here are some of the more common strategies business owners employ:

Funding Buyout Agreements
In the case of partnerships, the death or disability of one partner can have a devastating effect on the survival of a business. Insurance can provide an excellent method of funding buyout agreements so that the remaining partner takes full control of the business and the surviving family is properly compensated.

Shared Ownership
For companies who wish to retain top employees, the shared ownership of a permanent insurance policy can be an attractive opportunity. It protects the company against the death of the employee, and motivates that person to remain with the firm through the enticement of an attractive, low-cost retirement asset. This arrangement can create a win-win situation for everyone.

Minimize Corporate Taxes
If corporate assets are invested in fixed income, then an insurance strategy can not only reduce its taxable income but it will lower the value of the business by the amount of the investment, thereby reducing the inevitable capital gains tax liability.

Maximize Corporate Assets
By taking advantage of tax-deferred growth inside Universal Life or Whole Life, corporate assets can avoid accrual taxation and grow to a much greater value than if they were invested in a regular account. Not only that, but upon death, most, if not all, of the proceeds can be paid out of the corporation tax-free. Ordinarily they would be paid out as taxable dividends, requiring approximately 1/3 of the value to be paid in taxes.

TOP

An asset allocation tool

We all have the same pools of capital within which to invest: pension (employer, OAS, CPP), RSP/RIF, and non-registered. As mentioned, tax-exempt insurance allows you to invest and grow money on a tax-deferred basis, much like an RRSP. It is an excellent way to complement the rest of your overall portfolio; by moving a small percentage of your non-registered pool into a policy each year, you can further diversify your interests and spread your assets over one more pool of capital, namely your tax-exempt life insurance pool. In times of volatile market conditions, when people are looking for any opportunity they can find, insurance can provide both diversification and peace of mind, as it looks after both your investment and estate planning needs.

TOP

Living Benefits

Not only do insurance products benefit your estate, some of them are designed to meet your needs while you live. They give you the financial freedom to maintain your lifestyle or to obtain the care that you require. Here is a brief overview of such opportunities:

Disability Insurance
The greatest asset most of us possess is our ability to earn an income. Why not insure such a valuable asset, which is worth much more than your car, house, and jewelry all put together? Also ask yourself how long your portfolio would last if you needed to create a lifetime income. A disability insurance policy will provide a tax-free income stream to replace your future earnings.

Critical Illness
What are the chances that you might develop life-threatening cancer or suffer a heart attack? If either of those occurs, your finances will be put to the test; your family may need to leave work to care for you, or you may decide to seek expensive private care. In any event, Critical Illness provides a lump sum that you can use to combat any one of up to 22 specified conditions, or in any other way that you see fit.

Long Term Care
With advancing medical breakthroughs, there is a greater chance than ever that we will grow very old. With old age comes a strong possibility that we may not be able to care for ourselves. Many people will require special care, either from a specialized individual who visits you, or in a special care facility. In either situation, Long Term Care provides the means to pay for the necessary help, so that your family doesn't have to.

TOP

Investment Products

Our Investment Advisors have a long history of matching client needs to appropriate investment solutions. The insurance industry recognized a long time ago that they could deliver investment solutions to meet particular client needs that other financial institutions could not. The following is a brief explanation of each product and its benefits:

Segregated Funds
Have you ever wished that you could invest in the market but significantly reduce the risk inherent in those decisions? Segregated funds present such an opportunity. Their primary purpose is for estate planning; not only will insurers guarantee (between 75% and 100%) your initial deposit at the time of your death, but the greater of your investment value or guarantee will flow directly to your named beneficiaries, without having to pass through your estate. That allows your estate to save a considerable amount of money and your heirs a significant amount of time and trouble. As well, the same guarantee standards apply if you hold on to the contract for at least 10 years. This can be a great comfort to individuals who have difficulty sleeping during times of market turbulence.

Annuities
The purpose of an annuity is to provide a steady, guaranteed stream of income. For many older clients who want to ensure they have a guaranteed income, an annuity offers the simplicity and guarantee that they can appreciate. In return for a lump sum, the insurer will deliver a regular income for the investor's entire lifetime. That eliminates the need to manage the investment, continuously looking for the highest rates and worrying about what prevailing rates will be at maturity. If the investor wishes to have the initial capital returned at death, the annuity can be used in conjunction with a life insurance contract. This strategy often delivers a greater net yield than traditional fixed income products.

Guaranteed Investment Annuities (GIAs)
These operate just like GICs, only with the same estate planning benefits of segregated funds. Interest is earned and either taken as income or reinvested to compound; at death, the initial capital is delivered to a named beneficiary, thereby avoiding the costs and delays associated with probating the estate.

TOP