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Insured Retirement Strategy


Use a universal life insurance policy to accumulate tax-exempt savings. Supplement your income during retirement by using the accumulated investments. Withdraw funds and pay tax on the investment growth or use the policy cash value as collateral for bank loans. This program offers the following advantages:

  • Investments within a UL policy accumulate tax-free
  • No taxation when policy assigned as collateral to the bank
  • One or a series of bank loans are received tax-free
  • The bank may capitalize loan interest (no payments required while living)
  • When properly structured loan balance is fully secured by UL investment value
  • Upon death, tax-free insurance proceeds are used to retire bank loan with remaining balance paid to beneficiaries

Your client establishes an insurance policy with the ability to make maximum deposits. The objective is to maximize the UL investment account so that it will provide future collateral value for bank loans. When the plan is properly structured, you can demonstrate that the accumulated UL investment value is greater than investing the same deposits in an alternative investment that is taxable. The cost of insurance within the UL plan should be less than the taxes paid on the alternative investment.

The recommended insurance plan is maximum funded Universal Life policy with the minimized insurance pattern. This pattern automatically adjusts the insurance each year after the deposit paying years to be the minimum allowed under the Income Tax Act. The recommended premium deposit period is 3 to 5 years. This combination results in minimum insurance cost and maximum investment value. For a married or common-law couple, a Joint Last to Die plan is recommended to further reduce the insurance cost. The couple need not wait until the insurance proceeds are paid at second death to retire any bank loan. The Early Death Benefit option at the time of first death enables all or a portion of the UL investment portion (Account Value) to be paid as a tax-free death benefit, which can be applied towards the bank loan. As well, should anyone insured within the policy become disabled, as defined in the Disability Benefit Payout provision, tax-free access to the UL investment portion is available.

    Ideal Client
  • Single or couple with non-registered investments that are surplus funds
  • Presently paying taxes on investment growth or there will be deemed capital gains tax at death
  • Making maximum RRSP/pension contributions, no debts, no mortgage
  • Interested in tax-advantaged investments with the option of using them to supplement retirement income if needed, at least 15 years from now. The longer the deferral period, the greater the benefit
  • Comfortable with associated risks with borrowing, e.g., future loan rate vs. UL rate, creditworthiness at bank, accumulating long term debt, income not guaranteed
    Suggested Approach
  • For a client with substantial non-registered investments and not relying on all of them for retirement:
    There is a way that you can invest without paying any taxes today or in the future. If you want to access these funds for retirement or investment, there are strategies to receive income, also tax-free.

For more information on how to personalize based on your own situation contact FSE. Financial Group Broker at 403-253-7007

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