How to turn your life insurance policy into a TFSA on steroids

13 October, 2015

Filed Under: Financial Planning | Special Reports and Newsletters | Tax Planning

Life insurance. After just those two words I can sense your attention starting to waver.

But if you are a high-net-worth Canadian who cares about your investment returns and paying less in taxes, you should pay attention to life insurance.

Are you rich? Here’s how to tell — and why you should care 

By high net worth, in this context I mean someone who will very likely be leaving an estate of at least $2 million, as well as anyone who has $500,000 or more in a holding company.

My tax and insurance partner at TriDelta, Asher Tward, helped to develop three strategies that can meaningfully help you:

Pulling money out of corporations tax-free (or close to it)

This example uses a 70-year-old couple who have a holding company. Today, a 70-year-old man has a median life expectancy of 15 years and a woman has a life expectancy of 17 years.

The strategy here is to have the company purchase a “Joint Last to Die” policy on the couple. The death benefit of this strategy will be tax-free to the corporation, and the vast majority of that payout can be pulled out of the corporation tax free using something called the capital dividend account.

Unlike term insurance, which may never pay out, permanent insurance (Universal Life, Term to 100 or Whole Life) will definitely have a payout and can therefore be looked at as an investment. The question is, would this be a better investment than stocks or real estate?

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