Corporate & Individual Retirement Plan
How can you save more for retirement?
Did you know that permanent life insurance contains both insurance and an investment component? This combination can give you the financial protection you need plus a tax effective way to save for retirement, beyond RRSP and TFSA limits.
If you’re a high income earner who needs life insurance and wants to save more for retirement, you can enhance your savings plan with the Insurance Insured Retirement Plan. This strategy combines cost effective permanent life insurance and a tax-deferred investment into one plan.
If you’re already maximizing your RRSP and TFSA contributions, you can benefit from this innovative plan to supplement your retirement income and take advantage of:
- Tax-exempt permanent life insurance
- Tax-deferred accumulation of your premiums in the plan – beyond RRSP and TFSA limits
- Tax-free supplemental income at retirement via a 3rd party loan (or line of credit)
Here’s how it works:
Before you retire…
Working with your insurance advisor, determine your overall financial goals including how much permanent life insurance and retirement income you’ll need. Take into account the money you’re setting aside in your RRSP, TFSA and other savings plans.
Since permanent insurance is the foundation of the plan,
you’ll need to then apply and qualify for your life insurance. Once approved, the premiums you make will
be allocated into a tax-deferred investment component. This investment account (net of insurance charges) will then accumulate on a tax-deferred basis until your retirement.
When you retire…
You can arrange to take a loan from a 3rd party lender using the cash value of your policy as collateral. The proceeds from this loan can then be used to supplement your retirement income on a tax-free basis Your lender will let you know the maximum amount that you can borrow, using the cash value that you have accumulated in your policy. Depending on the terms of your loan, interest payments may be required. However, the lender may provide options to have the interest capitalized or funded through additional borrowings. At death, the loan will then be paid-off, using the tax-free proceeds of the life insurance policy. Any remaining amount will be paid to your named beneficiaries.
For example, consider Max and Marie who are both 45 years old. They’ve both been maximizing their RRSP contributions and are planning to retire at age 65. They also have another mutual fund portfolio set aside for retirement, but it’s being taxed annually. Working with their advisor, they discover that they can save an extra $15,000 per year and need $380,000 of permanent life insurance protection. They’d like a cost effective and tax efficient plan that helps them achieve all of their goals.
The Solution: The Insurance Insured Retirement Plan
At age 65, Max and Marie are able to secure a loan from a lender using the cash value of their policy as collateral for a loan. This permits them to borrow up to an amount equal to 90% of their cash value.
The Results, using The Insurance Insured Retirement Plan
- Max and Marie now have a tax effective retirement savings plan – beyond their RRSP and TFSA.
- The investment component of the policy accumulates on a tax-deferred basis.
- When they retire, they can use the cash value of their plan as collateral for a third party loan (or line of credit); the proceeds of the loan can be used as a source of tax-free retirement income – when they need it.
- The outstanding balance of the loan is paid-off from the tax-free proceeds of their life insurance policy; any residual amount is then paid to their named beneficiary.