When people think of Life insurance, at the heart of it, it’s about taking care of loved ones. They see life insurance as a tool that protects people they care about from the potentially devastating financial losses that can result from a premature death. However, life insurance can also help you and/or your estate preserve wealth. Here are four scenarios to consider.
Use life insurance to fund your retirement
The tax-exempt accumulation of cash in a permanent life insurance policy can provide you with extra money during retirement. When you retire, you can use the policy’s cash value as collateral for a line of credit with a bank, credit union or insurance company. The lending institution may not require repayment of the loan or accumulated interest until death giving you another source of tax free money to fund your retirement.
Use life insurance to pay your final tax bill
Taxes are usually owed upon death for assets such as a family cottage or registered investments, as they are ‘deemed sold’ when the owner dies, and capital gains are realized. The tax liability occurs on second death for couples, as a rollover is available for property and RRSPs/RRIFs to a surviving spouse (via the will, joint ownership with right of survivorship, or beneficiary designation) with no immediate tax consequences. Since life insurance proceeds are paid at death, instead of naming someone as the beneficiary of your life insurance policy, you can name your estate as the beneficiary. You can ensure the tax free money from your life insurance policy is used to cover your final taxes so your heirs can inherit as much as possible.
Use life insurance to give to charity
Life insurance can fund a charitable donation and trigger a large tax receipt when you pass away. Luckily, Canadians are eligible for annual tax credits on eligible donations of up to 75% of net income and this tax credit extends to eligible donations of up to 100% of net income in the year of death (and the year prior to death). You can name the charity of choice as your beneficiary, so the insurance proceeds will be paid to the charity directly, and your estate will receive a large tax receipt to offset taxes owing on your final tax return.
Use life insurance to make sure your grandchildren are looked after.
Afraid the kids are going to spend all the money and leave nothing for your grandchildren? Take out a life insurance policy on your children with your grandchildren as the beneficiaries. You can set it up so the premiums are fully paid up by the time you pass; this way your grandchildren aren’t stuck paying the premiums after you’re gone.
If you would like to discuss any of the above scenarios, give us a call.
Mani Fenili (October 20, 2021)
THE COMMENTS CONTAINED HEREIN ARE A GENERAL DISCUSSION OF CERTAIN ISSUES INTENDED AS GENERAL INFORMATION ONLY AND SHOULD NOT BE RELIED UPON AS TAX OR LEGAL ADVICE. PLEASE OBTAIN INDEPENDENT PROFESSIONAL ADVICE, IN THE CONTEXT OF YOUR PARTICULAR CIRCUMSTANCES. THIS ARTICLE WAS WRITTEN, DESIGNED AND PRODUCED BY MANI FENILI FOR THE BENEFIT OF MANI FENILI WHO IS A FINANCIAL ADVISOR FOR BRANDON LINDSAY INSURANCE AGENCIES, A TRADE NAME REGISTERED WITH INVESTIA FINANCIAL SERVICES INC., AND DOES NOT NECESSARILY REFLECT THE OPINION OF INVESTIA FINANCIAL SERVICES. THE INFORMATION CONTAINED IN THIS ARTICLE COMES FROM SOURCES WE BELIEVE RELIABLE, BUT WE CANNOT GUARANTEE ITS ACCURACY OR RELIABILITY. THE OPINIONS EXPRESSED ARE BASED ON AN ANALYSIS AND INTERPRETATION DATING FROM THE DATE OF PUBLICATION AND ARE SUBJECT TO CHANGE WITHOUT NOTICE. FURTHERMORE, THEY DO NOT CONSTITUTE AN OFFER OR SOLICITATION TO BUY OR SELL ANY SECURITIES. MUTUAL FUNDS, APPROVED EXEMPT MARKET PRODUCTS AND/OR EXCHANGE TRADED FUNDS ARE OFFERED THROUGH INVESTIA FINANCIAL SERVICES INC.
