How Life Insurance Benefits the Wealthy: A Canadian Perspective

By Laura Fitzsimons

Life insurance is more than just a safety net; for high-net-worth individuals and high-net-worth individuals who own a holding company, it’s a sophisticated tool that can address unique financial challenges. Here’s how wealthy Canadians leverage life insurance:

1. Estate Planning and Taxes: Mitigating Canada's Estate Liabilities

• Canadian Context: While Canada doesn't have an official estate tax, capital gains tax applies on the deemed disposition of assets at death. As well, RRIF/RRSP remaining attract a great deal of tax on death as well.

• Life Insurance Solution: Proceeds from life insurance policies can cover capital gains taxes on assets like real estate or investments plus estate tax on RRIF/RRSP. This ensures that beneficiaries inherit the estate without needing to liquidate properties or other valuable assets to cover tax liabilities.

• Co-ordinated Planning: Your insurance agent, estate CPA, estate lawyer and banker, can help you make your corporate owned life insurance policy reduce estate tax, as one part, of your Lifecycle Wealth Plan.

  
  

2. Business Protection: Securing Family-Owned Enterprises

• Canadian Business Landscape: Family businesses are common in Canada, and the sudden loss of a key family member can disrupt operations.

• Life Insurance Solution: Policies can fund buy-sell agreements or ensure the business has the liquidity to buy out the deceased’s shares. This keeps the business intact, prevents forced sales, and ensures smooth ownership transitions within the family.

  
  

3. Investment Growth: Leveraging Tax-Advantaged Policies

• Canadian Tax Advantages: Permanent life insurance policies, such as universal life or whole life, offer tax-sheltered growth. Unlike other investment accounts, the growth within these policies isn’t subject to annual taxation.

• Life Insurance Solution: Wealthy Canadians can use these policies as part of their diversified investment strategy, achieving stable, tax-deferred growth while benefiting from protection.

  
  

4. Access to Liquidity: Cash Flow Without Selling Assets

• Illiquid Wealth: Wealthy individuals often own assets like real estate, private equity, or art, which can’t be easily converted to cash.

• Life Insurance Solution: Policies can be used as collateral for loans, providing liquidity without the need to sell appreciating assets. This approach preserves the wealth for future growth while meeting immediate cash needs.

  
  

Why Life Insurance is Crucial for Wealthy Canadians

For wealthy Canadians, life insurance goes beyond traditional uses. It helps in:

• Preserving generational wealth by addressing capital gains taxes.

• Ensuring business continuity through funding succession plans.

• Optimizing tax efficiency in investments.

• Providing liquidity without compromising long-term wealth-building strategies.

  
  

In essence, life insurance serves as a cornerstone for strategic financial planning, protecting both assets and legacies.

This publication contains the opinion of the writer. The information contained herein was obtained from sources believed to be reliable, but no representation or warranty, express or implied, is made by the writer, Mandeville or any other person as to its accuracy, completeness or correctness. This publication is not an offer to sell or a solicitation of an offer to buy any securities. The information in this publication is intended for informational purposes only and is not intended to constitute investment, financial, legal, tax or accounting advice. Many factors unknown to us may affect the applicability of any statement or comment made in this publication to your particular circumstances. Hence, you should not rely on the information in this publication for investment, financial, legal tax or accounting advice. You should consult your financial advisor or other professionals before acting on any information in this communication.