Jared Pilon
According to recent statistics, 22 million Canadians have some kind of life insurance policy in place. Are you one of them?
64% of Canadians value life insurance above health, home and auto insurance policies. If you’re not in the 64%, is it because you believe life insurance is too expensive?
80% of Canadians believe life insurance rates are too expensive. Are you in the 80%?
The average life insurance policy held by Canadians is $458,000. If your coverage is more or less than this, why do you think that is?
Canadians are overpaying for life insurance by an average of 36%. What do you think the reason for this is?
On episode #37 of the Tax Talk Podcast, Jared sits down with Colleen Gillam-Judd with IG Wealth Management to discuss the importance of having the proper insurance policy in place to protect your business and most notably, your financial legacy.
What is the role of the wealth advisor in the estate planning process with respect to insurance?
Estate planning is a complex field. Having a wealth advisor that is willing to work with you and Legacy Tax to implement a plan that protects your business assets and preserve your financial legacy is imperative. You can never start earlier enough.
What is the difference between term and whole/universal life insurance?
Simply put, term insurance will provide life insurance coverage for a set period of time, usually in increments of 10 years. Whole/universal life insurance is a permanent policy that you usually pay into until you pass away. Term insurance is typically cheaper than whole/universal as term insurance expires and unless used in that time frame, provides no benefit to the rate payer. Whole/universal provides lasting coverage and can be coupled with an investment account to allow the rate payer to accumulate tax-free investment income.
What are the determining factors for selecting the appropriate type of insurance?
There are many factors to consider when selecting a policy. Your age, health, term of the policy, short- & long-term goals, cash flow and many others. Working with an experienced wealth advisor and Legacy Tax will enable to you to select the right policy for your situation.
Can you receive tax-free returns within an investment policy?
Some whole/universal life insurance policies provide an investment option in conjunction with the insurance. The investment balance will grow on a tax-deferred basis. You maybe be able to withdraw money from your policy with minimal or zero tax consequences. This is based on the adjusted cost base of the policy and would reduce the benefit paid out on death (if not paid back into the policy).
How is life insurance used to create estate liquidity?
If you hold a significant amount of real estate or most of your wealth is tied up in a private corporation, it can be difficult for your estate to pay the tax liability associated with your final tax return. Life insurance can be put into place to generate cash flow for the estate to pay taxes, funeral costs, and other estate liabilities. This helps ensure that your final wishes are honored with respect to the distribution of your assets.
Do you recommend holding life insurance personally or within a corporation?
It depends. If the life insurance policy is meant to fund a Unanimous Shareholders Agreement, it is likely best to hold the policy within the corporation. If you are the sole owner of the company, it may be more beneficial for the policy to be held personally, the benefit is then paid to your estate and your estate administrator can allocate the proceeds. Speak with Colleen to ensure your policy is held by the correct entity.
How is life insurance used to support business succession planning?
The main reason for using life insurance in your succession planning, beyond liquidity issues, is fairness. If one of your children decides to carry on the family business, there may be few assets left to distribute to your other children. Having a life insurance policy in place allows your estate administrator to equally distribute the estate, without the need to liquidate the company to do so.
Would you recommend using life insurance to fund a buy/sell agreement?
Yes, life insurance is a useful tool with respect to a buy/sell agreement. This allows the party that will be continuing operations to payout the estate of his/her former business partner without running into liquidity issues. The estate gets cash, which is typically what they want, and the business can continue operating.
When setting up a buy/sell agreement, what should be considered by the client?
A buy/sell agreement should address and provide protection in the event of an owner’s termination of employment, retirement, divorce, disability, or death. These events can happen at any stage of the business and have a significant negative impact on the business if not properly prepared for in advance.
Are insurance policies a good tool for wealth accumulation?
Yes, but like everything in life, moderation is important. A good investment strategy relies on a number of different assets to produce income and generate wealth. Other options to consider are building your business, investing in a balanced stock portfolio, purchasing real estate properties and others.
Do you work with clients to implement charitable giving strategies using life insurance?
Charitable giving strategies are a great way to solidify your legacy. Funding a life insurance policy with the intent of donating the benefits of the policy to a registered charity is a great way to give back to the community and generate a sizable donation receipt that your estate can use upon your passing.
How can life insurance be used in conjunction with a trust?
The most commonly seen uses of trusts in conjunction with life insurance benefits are for minors, blended family situations or for permanently disabled individuals. Each of these family situations is very unique and it is important to chat with an investment advisor, lawyer and accountant to ensure you are structuring the trust in such a way to protect the intended beneficiaries.
Are life insurance policies a good vehicle to provide creditor protection?
Life insurance cannot be specifically used as a direct method for protecting assets from outstanding creditor claims. With that said, life insurance benefits are protected from claims and can be a good vehicle for protecting your assets. If you are interested credit protection through a life insurance policy, speak with Colleen directly.
Should business owners consider disability buy-outs and critical illness insurance options as well?
At a younger age, disability and critical illness policies are likely more beneficial for business owners than older owners. These policies are most expensive (in general) when compared to life insurance as the likelihood of a disability or critical illness occurring at a young age is higher. That said, it is important to have these policies in place to ensure continuity within your business.
Conclusion
Please contact us at for personalized advice with respect to life insurance and its use as a tool to build generational wealth. We will work with your investment broker (or recommend one to you) to ensure your business is protected with the proper insurance policy. Remember, when all is said and done, preserving your financial legacy should be your number priority.
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Posted: 2/28/24
