In a world of way too much tax there still a tax strategy that Canadians should take advantage of.
This strategy is to decrease your tax burden, and the tactic is purchasing a life insurance policy that allows for tax-deferred growth.
The Concept
Many insurance companies have life insurance contracts that can be used as both a tax advantage and an investment tool.
The basic concept is to pay as much money for the least amount of insurance. This is not to say that the insurance portion is overpriced, but rather the over funding goes into a separate account inside the policy and all of the growth is tax-deferred.
This type of policy can be very advantageous to the owner. RRSPs allow for a limited amount of saving and if you want to save more money you get no further tax advantage.
Retiring & Finances
Most Canadians approaching retirement have worries about having enough money. They have worked hard for many years, hoping to retire to a lifestyle of traveling, entertaining and living well.
Considering the ups and downs of the stock markets it would be wise to consider diversifying your retirement savings portfolio.
Over-funded life insurance can be an excellent solution.
Over-Funded Life Insurance
First of all, you can be certain that your heirs will be taken care of. You can spend your retirement money on yourself and the death benefit from the life policy will always leave a legacy for those loved ones you leave behind.
Some other important advantages exist within a program like this, including but not limited to, tax-free growth. No income tax is due on growth or interest earned on cash values in a life insurance policy, and no income tax is due on loans from the policy. A loan can be made on the cash inside your policy and it is generally considered a debt, not a taxable distribution.
If you are maximizing your RRSP contributions and still looking for a tax-friendly way to save call us today for free quotes and detailed explanations of how an overfunded life insurance policy can work for you.
Upon your repose and under certain circumstances the death benefit is paid to your beneficiary Tax-Free and is not subject to withholding for estate taxes. It also can not be held up in estate or subject to probate fees.
The Next Steps
Rather than going to a captive agent (like you will find at the banks or a specific insurance carrier for example) please consider speaking with an insurance broker. We will compare and contrast the competing insurance company’s offers and find you the best solution.
Your insurance broker, along with some advice from a pool of accountants and lawyers (who work with us) will assist in setting up the ownership and beneficiary designations properly.
Please note that this article is for information purposes only and should not be considered legal or accounting advice.
