Life Insurance for Different Life Stages
Peter Zloty - Mar 07, 2017
Life insurance* can play a valuable role in all stages of life. It may start off as a protection vehicle, but can grow to play an important role in retirement and estate planning.
Protecting Your Family
For most young families, one of the main reasons for seeking life insurance may be for protection in the event that they are faced with an unexpected accident, illness or death. Many young families carry a large mortgage or are faced with expenses associated with growing children and may not be prepared for a situation in which a spouse may no longer be able to provide for the family.
Term insurance may be one of the best options to create an insurance protection strategy for a given time period in a relatively inexpensive way.
Supporting Your Business
Life insurance can also play a role if you own a business. Key-person insurance can help to facilitate business continuity in the event that a key individual is lost. In a shareholders’ agreement, life insurance may support a buyout agreement in the event of a shareholder’s death. The proceeds of a life insurance policy can be used by the remaining shareholders to buy the shares of the deceased shareholder.
But life insurance can go further than protection. It can help to minimize taxes or maximize assets. For example, if a business needs a life insurance policy for key-person insurance and has excess cash flow, an insurance policy with a cash value account could also be an attractive investment vehicle since funds can grow on a tax-exempt basis within the policy and be received by the beneficiary on a tax-free basis.
Enhancing Retirement and Beyond
As individuals near retirement, using life insurance as part of an investment program may offer tax or estate planning benefits, or even act as a source of improving retirement income.
With permanent insurance, such as whole life or universal life, part of the premium paid goes into a cash value account that can grow through investing. The main advantage is that, generally, the investments can grow on a tax-sheltered basis inside the policy and can be paid out on a tax-free basis when you pass away, based on certain regulatory limits. (Although changes to the exempt test rules that took effect on January 1, 2017 have impacted the amount of money that can accumulate within an exempt life insurance policy on a tax-preferred basis, tax benefits are still available.) In many cases, the cash value can also be withdrawn to supplement retirement income.
Other ways in which life insurance may play a valuable role include:
Funding taxes on death – Life insurance may be used to cover the taxes due by an estate. For instance, a second property, such as a family cottage or cabin, may be subject to substantial capital gains taxes upon death if it is not a principal residence. A life insurance policy that covers the estimated tax bill may help to ensure that the property does not need to be sold in order to fund the taxes.
Providing liquidity – Life insurance may provide liquidity if a business doesn’t have the liquid assets to pay the estate taxes when being passed on to children. It may also help to equalize inheritance if there are children who won’t be part of the family business.
Donating to charity – Life insurance may help to promote philanthropic goals. As an example, a charity may be designated as a beneficiary to a life insurance policy. Upon death, your estate will receive a tax receipt for proceeds received from the policy which can reduce income tax liabilities, while providing a donation legacy in your name.
Get More Information
For many families, life insurance may start off as a means of protection. But its many uses mean that it can progress to becoming an important part of an overall investment plan. Given our understanding of your investment situation, we would be well placed to assist should you wish to review your insurance options.
*Offered through Canaccord Genuity Wealth & Estate Planning Services