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Why build wealth with life insurance?

When you build wealth with life insurance, you build wealth for yourself, and your family’s next generation. When you build wealth elsewhere, you build wealth for yourself and unknowingly make the government your biggest beneficiary.

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Build Generational Wealth with Life Insurance in Canada

Whether you’re an individual seeking a risk-free way to build wealth, a corporate business owner looking to build, and pass corporate wealth tax-efficiently, or someone who’s already built wealth looking to transfer wealth in the most tax-efficient manner, we can help you achieve your financial goals by effectively utilizing a life insurance cash value policy as a powerful wealth-building and estate-planning tool, so you can build more wealth, and leave a higher net estate value to your family’s next generation.

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Advantages of Building Wealth with Life Insurance

Life insurance is an under-utilized wealth accumulation strategy that’s been used by the old rich to build, preserve, and magnify wealth for many generations. It offers unique advantages compared to traditional investments that everyone else uses. Among its many advantages are as follows:

Infinite Banking

Infinite banking empowers you to “self-finance” your loans for major purchases, investments, or business opportunities that you would normally borrow from a bank or a lending institution. Thereby recapturing interest, you would have otherwise lost if borrowed from a third-party lending institution.

Insured Retirement Plan

Retirement planning strategy that takes advantage of the tax-free asset growth, and potentially tax-free retirement income through a permanent insurance policy, coupled with the tax-free death benefit.  We offer both corporate-insured retirement, as well as individual-insured retirement plans.

Wealth Transfer

Most Canadians are unaware that they’re leaving less to their heirs than they planned to. Life insurance can help you preserve, and transfer wealth tax-efficiently. Providing the liquidity your estate or heirs need to pay for any capital gains taxes that may arise as a result of your death.

Tax-Deferred Growth

One of the significant advantages of permanent life insurance policies is the tax-deferred growth of the cash value component. The cash value accumulates over time, and policyholders can access it through loans or withdrawals without incurring immediate tax liabilities. This tax-advantaged growth can be a valuable asset for building wealth.

Compounded Asset Growth

As policyholders contribute to the policy, a portion of their contribution goes into the cash value component, which is either invested in market portfolios (universal life) or stashed in the carrier’s participating funds to earn dividends, which grow compounded over time, tax-sheltered inside the policy.

Liquidity and Flexibility

Permanent life insurance policies offer liquidity, providing policyholders with the flexibility to access the cash value when needed. The cash value acts as a savings component, and policyholders can use it for various financial needs, such as supplementing retirement income, funding education expenses, or as an emergency fund.

Uninterrupted Wealth Growth

Unlike traditional investments where you need to erode your wealth whenever you need money to fund major purchases (or emergencies), policyholders need not erode their cash values whenever there’s a need for liquidity. You have access to cash, while your wealth continues to grow, uninterrupted inside your policy.

Financial Protection

Apart from the wealth-building, and estate preservation benefits, building wealth with permanent life insurance also offers peace of mind, knowing that your loved ones are financially protected against the financial consequences of premature death, such as the need for income, or to pay any outstanding debts.

Tax-Efficient Wealth Transfer

Death is a taxable event that may erode or liquidate your assets at the time of transfer. Life insurance can play a vital role in preserving your assets by offering the liquidity your estate or stakeholders need to avoid asset degradation and/or liquidation, so you leave your legacy intact.

Why build wealth with life insurance?

Life insurance is the only other asset class that isn’t subject to capital gains taxes at death, aside from your primary residence. It’s been used by the old rich to shelter, and magnify wealth for many generations.

Safe & Secure

Pariticpating whole life policies are a safe and secure way of building wealth. Your wealth growth isn’t dependent on market performance.

Tax-Free Growth

Your cash value grows, and compounds inside the policy, tax-free over time, and it remains tax-free as long as the asset stays inside the policy.

Magnify Wealth

The death benefit of participating whole life tends to increase over time. The longer you live, the higher the tax-free death benefit for your heirs.

What is Life Insurance, and Why Does it Matter?

In essence, life insurance is a financial product designed to provide a tax-free, lump sum payout to the policy’s named beneficiaries upon the life insured’s death. It offers protection and financial security to those left behind by replacing lost income, covering debts, and the costs of death, as well as funding future expenses of the deceased’s family members. 

As opposed to popular belief, there is more to life insurance than the death benefit that your beneficiaries will get. Most Canadians “buy life insurance” only as a financial safety net, to ensure that their loved ones are taken care of financially in the event of premature death, or that any immediate costs as a result of death are taken care of. As a result, life insurance is deemed as an unnecessary financial product since it doesn’t benefit the life insured while he or she is alive, and in most cases, only deemed as an unrecoverable expense.

While the basic benefit of a life insurance policy, does offer peace of mind, in knowing that your family’s financial future is secure, or that your costs of death are covered, life insurance can offer, and do so much more for yourself, and your loved ones than the death benefit payout.

Life insurance is an effective wealth-building and estate-protection tool that’s been utilized by the old rich, not only to build wealth but to preserve, and amplify their family’s wealth for many generations – and they’ve been doing this for the last 100 years.

By understanding the wealth-building, and wealth transfer aspects of life insurance, you can make a better-informed decision, not only to safeguard your loved one’s financial well-being but to use a cash value life insurance policy as an effective wealth-building strategy, enabling you to accumulate assetsprotect your estate, and leave a higher net estate value to your next generation.

How to Build Wealth with Life Insurance

Compounded growth is the secret to long-term wealth accumulation.

A well-designed, cash-value permanent life insurance is the secret to building generational wealth.

There are generally two types of life insurance and the right policy will help you build generational wealthunaffected by market conditions, and uninterrupted by major life events or purchases.

  1. Term Life Insurance
  2. Permanent Life Insurance

Term life insurance aims to cover temporary financial obligations such as a person’s income, or debts, such as a mortgage, personal, and/or business loans. A Term life policy doesn’t allow you to build equity inside the policy as it’s a straightforward type of life insurance with no bells and whistles that covers you for a certain period of time depending on the length of your policy’s term. Term policies can be renewed at the end of the term (usually for a higher monthly premium) or converted to permanent life insurance as long as the policy is renewable and/or convertible.

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Permanent life insurance, on the other hand, provides permanent financial protection, unlike term life insurance, a permanent life insurance policy provides you with lifetime coverage. Aside from permanent life insurance coverage, some types of permanent life insurance can be used to build and accumulate wealth, much like you would with traditional market investments such as segregated fundsmutual fundsETFs, or individual stocks. The obvious difference, of course, is that the death benefit proceeds of a life insurance policy don’t generally get taxed as traditional investments, and your other assets when you pass away since these are all considered disposed of (sold) before death. As a result, your loved ones will always get less than you think they would because such asset disposition results in a taxable event in the hands of your estate.

Three Types of Permanent Life Insurance

There are generally three types of permanent life insurance policies, but not all can be used as a vehicle for effective wealth building.

  1. Whole Life Insurance
  2. Universal Life Insurance, and 
  3. Term to Age 100 or Term to 100 Life Insurance

Term to age 100 policies don’t generate cash values, while they can be used for wealth preservation purposes, it’s not an ideal policy for wealth building purposes. Canadians who are looking to build wealth with life insurance basically have two options, either they use participating whole life or universal life insurance policies.

Universal Life Insurance

Universal life insurance is a flexible type of life insurance that has an investment component bundled with life insurance protection. Your cash value growth with a UL (universal life) policy depends on market performance. Just like a stand-alone investment account such as a mutual fund, segregated funds, or a direct investing account. The returns, and wealth growth in universal life insurance tend to fluctuate with your policy’s underlying bond and equity portfolios. The only difference is that you have life insurance coverage while you’re building your wealth. You can learn more about how universal life insurance work as an asset class by reading about the insured retirement plan strategy.

Another noteworthy disadvantage of universal life insurance when used as a wealth-building strategy is that your asset growth gets interrupted each time you leverage your policy either with the life insurance company or a third-party lender such as a bank since no lender will lend you funds if your collateral is invested in market portfolios. As a result, your funds need to be moved into a high-interest savings account while you’re borrowing.

Whole Life Insurance

Whole life insurance, on the other hand, has two types. One is non-participating (or Non-Par), and the other is called participating (or Par) whole life insurance. For the purpose of wealth building, and wealth transfer, we’ll focus our discussion on participating whole life insurance because the non-participating type of policy isn’t designed for wealth accumulation purposes, the sole purpose of which is to deliver a guaranteed death benefit amount to one’s beneficiaries.

Participating Whole Life Insurance

Participating whole life insurance is called “participating” because policyholders become participants in the company’s (or the company’s participating policy) profits. Depending on whether the insurance company is a mutual or a non-mutual company. A mutual company does not have outside investors or shareholders and therefore isn’t considered a public company. A non-mutual company, on the other hand, is an insurance company that has de-mutualized or has gone public, meaning there are investors that own their shares. In this case, the dividend earnings are no longer based on the whole company but only on the profits generated by the underlying investments and revenue of the participating whole-life policies.

With participating whole life, you are eligible to receive dividends, which can be paid out in cash, used to reduce premiums, purchase additional coverage, or accumulate in the cash value component of the policy. Compared to universal life insurance, participating whole life insurance offers more predictable wealth growth, since your policy’s rate of return does not fluctuate due to the fact that the savings component  (equity) of your policy isn’t invested in the markets. As mentioned, your asset grows through dividend distributions, and while not guaranteed, Canadian insurance carriers that offer participating whole life insurance never missed issuing annual participating policy dividends since the late 1800s.

Building wealth with life insurance is done in a similar way as you would with stand-alone investments, where you consistently put away a certain amount of funds, either monthly or annually in an asset class that allows your asset to grow on a compounding basis over time. The only difference is, when you build wealth with a participating whole life insurance policy, you don’t have to deal with the emotional roller coaster of the market’s ups, downs, and crashes. Your wealth continues to accumulate, uninterrupted, regardless of market conditions.

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If you’re young, and just getting started on your wealth accumulation journey, setting aside a portion of your income on a monthly or annual basis is the key to long-term wealth accumulation, it doesn’t matter if you’re working for someone else, or you run your own business. The higher the percentage of your income that you keep to fuel your wealth building, the faster, and the bigger wealth you can build throughout your lifetime.

Building wealth with participating whole life policy is a more predictable way to build wealth, tax-efficiently. Your wealth growth isn’t dependent on market returns and isn’t affected by market conditions, instead, you earn policy dividends every year, the compounded asset growth is tax-deferred, and wealth inside the policy stays tax-free as long as it stays inside the policy. When the life insured passes away, the policy’s increased death benefit is paid out to the beneficiaries, tax-free. 

This is the secret of the wealthy when it comes to building, and leaving generational wealth. They build tax-deferred wealth during their lifetime, fund major purchases, and their retirement without cashing out their funds, and pass away leaving tax-free death benefits to their heirs.

If you’re seriously considering building wealth with life insurance, a financial advisor who specializes in helping clients build wealth with life insurance can guide you through the process. Feel free to book a free consult below.

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