Insurance Strategies For Tax And Estate Planning in Canada

What types of insurance strategies have people in Canada used to create wealth and shelter money from the tax man?

At Life Guard Insurance, in conjunction with the insurance companies we represent, we can provide advice on a large number of more complex life insurance strategies. These strategies have proven over time to be highly effective for Canadians to minimize taxation and enhance their estate and legacy for their heirs.

Life insurance is a unique product in Canada. There are a few key pieces of legislation that make insurance planning so effective.

Firstly, the death benefit of a qualifying insurance product is paid out tax-free. Almost all life insurance policies sold in Canada today are qualifying plans, and therefore the death benefits are tax free. You also have the choice to design your plan with a locked-in and stable death benefit or with a growing benefit, increasing over time.

Secondly, money that is invested inside a life insurance policy is allowed to grow and compound over time in a tax sheltered fund (up to a certain defined maximum based on the plan you buy). This allows invested wealth to grow and compound through your entire life without the government clawing it down with ongoing taxation.

Thirdly, the tax laws around borrowed funds, or leveraging, provides tax free income to the borrower. This allows life insurance policy holders in Canada to invest extra money into their policies over time, have the advantage of a tax sheltered investment plan, and borrow money from their insurance policy tax free.

All these unique legal features of life insurance and leveraging money allow you to invest substantial funds into a life insurance policy, reduce taxation both now and ultimately to your estate, and possibly even have access to tax free income in the form of loans.

Some well known life insurance strategies

Insured Annuity: also known as a Back-to-Back Annuity, this strategy enhances after tax cash flow today while preserving your investment capital for your heirs.

Estate Bond: this strategy increases tax free inheritance money you have set aside for heirs on a fully guaranteed basis, usually by 250 – 300% immediate growth.

Insured Retirement Plan: alson known as an IRP, this is a leveraging strategy, where you can own life insurance, use it as an investment plan to accumulate wealth, and borrow funds from the policy tax free in retirement.

Buy/Sell Agreement: this strategy protects your business interest through funding an agreement to buy out partners or major shareholders in the event of death or long-term disability.

There are many other strategies that can be used in Canada. The level of complexity can increase quickly, especially when getting into corporately owned life insurance policies. Life Guard Insurance has the expertise in house and has alliances with tax accountants, estate planning lawyers and the advanced case coordinators at various life insurance companies to help design your plan. Please contact Life Guard for more information.