Most Ottawa CFPs tag permanent life insurance as the ultimate planning tool, considering how it helps to access beneficial tax and estate planning solutions. But this only works if you can identify what your present and future priorities are. You can only maximize the benefits of a permanent life insurance policy as a financial instrument if you buy it early enough.
Let’s look at the flexibility of permanent insurance and how you can carve out different excellent solutions to your needs from it.
Solution 1: It can insure your earning power for the next generation.
Permanent insurance benefits you beyond your income-earning years. For example, it allows you to insure any income that would be lost if you happen to die during your income-earning years. This ensures your plans remain actionable even after your demise.
Solution 2: It can improve your investment income.
Permanent insurance comes with multiple options to contribute deposits higher than the insurance premium to the policy’s cash value. This means you can accumulate investment growth without paying the associated tax. It comes in handy for people who have excess funds after depositing in their TFSA and RRSP.
Depending on your future cash needs or retirement plan, you can convert the policy cash value into funds for personal use or use the tax-deferred status of the policy to hand the cash value down to your beneficiaries on your demise, without the tax.
Solution 3: It can improve your retirement income.
Similar to solution 2, contributing more than the insurance premium to your policy increases its cash value, which accumulates without the tax. Doing this gives you the option to adopt the Insurance Retirement Program (IRP) strategy upon your retirement. This strategy allows you to access your retirement income via a series of bank loans secured by your insurance’s policy cash value. On your demise, the bank loans are paid off using your insurance proceeds, while the excess goes to your beneficiaries on a tax-free basis.
Solution 4: It can preserve your capital during retirement.
The highest-paying retirement vehicles are not perfect – the payments stop on your demise, leaving your beneficiaries stranded. But not to worry, you can optimize your retirement income with Life Annuity by replacing the initial capital you invested with your permanent life insurance.
Solution 5: It can ensure equal benefits for your heirs.
It is possible to allocate parts or all of your permanent insurance plan’s proceeds to the equalization of inheritance among beneficiaries of your estate. You can do this anytime during your lifetime, and it is best applicable when you are passing a special legacy, like business or real estate, to a certain beneficiary. The beneficiaries that do not receive such bequests can get an equivalent value using your permanent life insurance proceeds.
Solution 6: It can preserve your legacy.
Tax will be deducted on all your capital property, including investments in stock market shares, shares in private corporations, or real estate, on your demise. The only exception is when you pass them down to your spouse. However, your beneficiaries can receive the proceeds from your permanent life insurance and use it to offset the amount of capital gains tax paid. Therefore, your estate goes back to its pre-tax value.
Solution 7: It can help you leave a charitable legacy.
If you want to leave a legacy gift to a charitable course, you can have your ownership of the policy transferred to such an organization while you are alive. You also get a tax receipt for the policy’s value at the time of transfer and each year for your paid insurance premiums. The entire insurance amount goes to the charity on your demise.
Alternatively, you can make the charity a beneficiary of the policy while retaining ownership. This way, your estate gets a tax receipt of the entire insurance amount on your demise.
There is more to each of these solutions in terms of implementation. We advise you to speak to your Ottawa-certified financial planner for in-depth professional guidance.