Dr. Roxanne Arnal, CFP®
Did you know insurance can be an investment? The reason? Taxation.
Permanent Life Insurance: A Wealth-Building Tool
There are two types of life insurance to support wealth building:
- Universal life insurance acts as term 100 coverage with an investment account. It offers flexibility to utilize the investment account when needed, making it ideal for securing coverage and preserving investment room. Like mutual funds, it offers a range of investment options.
- Whole life insurance includes a dividend component, which can be fixed or variable, depending on insurer-managed investment pools. Periodically reviewing your chosen dividend option is essential to ensure it aligns with your goals. The paid-up addition dividend can enhance policy values, outpacing inflation.
When considering permanent life insurance, examine the illustration of potential cash value growth, understanding the inherent risks.
Lower Risk Investment
Life insurance contracts generally involve lower risk investment than traditional markets. Insurers prioritize lower-risk investments because it helps insulate them from having to top up out of revenues.
Beware of High Growth Projections
Avoid illustrations with unrealistically high growth rates that downplay premium payments. Past instances of such policies failing to meet expectations serve as cautionary tales.
Creating Retirement Income
A healthy life insurance policy with an investment account can cover estate taxes, clear debts, and provide a legacy. It can also fund your lifestyle through policy loans, partial surrenders, or collateral for bank loans.
Tax Advantages
Investments within a life insurance policy grow tax-free as long as contributions stay within limits. Withdrawal methods in later life may trigger taxation through collateral or policy loans are generally tax-free.
Business-Owned Policies
Business-held investments face high taxation. Using life insurance can shield some business profits. However, understand the tax implications of accessing these funds later on.
Small Business Deduction Tax Rate Preservation
Investing in your life insurance contract can help maintain the small business deduction tax rate on your active business income.
Consider the impact of business ownership changes on your investment and life insurance coverage in business-owned policies.
Advisory
As your Chief Financial Officer, I’m here to help you understand the various tools available to you and your business to build your wealth. There are many factors to consider and understanding your goals is key to building a plan that serves you today and well into the future – as your life changes.
Have more questions than answers? Educating you is just one piece of being your personal CFO that I offer. Call (780-261-3098) or email (roxanne@c3wealthadvisors.ca) today to discuss insurance.
Roxanne Arnal is a former Optometrist, Professional Corporation President, and practice owner. Today she is on a mission to Empower You & Your Wealth with Clarity, Confidence, & Control.
These articles are for information purposes only and are not a replacement for personal financial planning. Everyone’s circumstances and needs are different. Errors and Omissions exempt.
