Three reasons permanent life insurance might be right for you
With considerably higher premiums than term life insurance, permanent life insurance isn’t for everyone. However, for high-income-earners and high-net-worth individuals, there are significant benefits. As a tax-sheltered environment, an investment vehicle, and a means to pass on wealth to beneficiaries tax-free, permanent life insurance can positively impact your estate.
Term life insurance ensures your dependents are covered in the case that you die prematurely, but expires before a pre-determined age. Essentially, term life policies are only designed to look after your family or business if you die unexpectedly. Permanent life insurance differs from term life insurance in that it lasts for your whole life, and pays out when you die, no matter how old you might be. Permanent life policies can benefit you in 3 ways:
1. BY REDUCING YOUR TAXES WHILE YOU ARE ALIVE Permanent life policies are tax-sheltered, meaning you can store excess assets now to remove them from the tax cycle. For high-income-earners who are filling up their other tax-sheltered spots – like RRSPs and TFSAs – permanent life insurance provides another place to put additional funds you’re not likely to spend in your lifetime.
2. BY REDUCING YOUR TAXES AFTER YOU DIE A lot of a person’s accumulated wealth is taxed by the CRA when your estate is settled and before it’s paid out to your beneficiaries. Permanent life insurance can be a useful tool to address additional taxes after death and to ensure your beneficiaries receive the full value you set aside. Regardless of the size of the policy benefit – whether it’s $100 thousand or $100 million – your beneficiaries won’t pay any income tax on it.
3. BY ACTING AS AN INVESTMENT VEHICLE Permanent life insurance can also be an investment vehicle for you. In addition to the death benefit portion of the policy, there is sometimes a “cash value” savings element accrued through your premiums. You can often use the value to cover future premium payments, borrow against it, or even pull money from this fund. Both the death benefit and cash value asset growth is generally tax-deferred, meaning you pay no tax on earnings while the policy is active.
For all your wealth and estate planning needs, like deciding whether permanent life insurance might be a good option for you, reach out to your CG advisor