Today, there are more Canadians retiring carrying much more debt than in the past. Types of debt Canadians are now taking into retirement with them include: mortgages, loans, personal lines of credit, and credit card debt. If you are one of the many Canadians taking a lot of debt with you into retirement , retiree life insurance may be the answer to ensuring prudent financial planning.
For a large majority of Canadians, the first source of retirement income is often their RRSP savings. However, there is a limit to what one can invest, and there will be tax on the withdrawals..This is why more Canadians are choosing a retiree life insurance strategy for supplemental retirement planning.
A Leveraged Retiree Life Insurance Plan
A retiree life insurance policy, particularly a permanent life insurance policy, is the ideal tax sheltering tool in Canada. Nearly all growth in a permanent life insurance policy grows tax deferred along with its immense compounding benefits. When comparing the growth of a tax sheltered life insurance policy to a taxed investment such as a GIC, it is quite surprising to see the big difference in growth as a result of the tax free nature of the life insurance policy.
With a leveraged life insurance plan, an investor will use the policy’s cash value for retirement income, normally accessed by leveraging the insurance policy via a bank that is owned by the insurance company. By doing so, the insurance policy will only be borrowed against, and not technically cashed. The policy value continues to grow, which offsets the growth in loan value. In this investment strategy, the key is to have the policy pay out tax free as a death benefit to be paid to the beneficiaries 100% tax free.
Uses For Retiree Life Insurance
Retiree life insurance planning should be a part of your overall financial planning strategy. Retiree life insurance can be used to pay off outstanding debts upon death rather than liquidating assets to pay off those debts. This type of life insurance is a good financial planning vehicle to ensuring a comfortable retirement because it provides a number of benefits to the insured, including:
Cover Taxes At Death: Upon your passing, there may be a high tax expense to the estate due to income from RRSPs, real estate, capital gains from investment portfolios, and other sources of income. Retiree life insurance can be used to pay these taxes. This means your beneficiaries will get more of your legacy because the tax bill is paid with the life insurance funds.
Cover Final Expenses: Every estate has expenses so it is important to have cash to pay for those expenses. Retiree life insurance can pay for funeral and burial costs, as well as any legal fees.
Income For Dependents: It is important to think about the financial security of your dependents such as your spouse, children, and grandchildren, after your death. Will they need more income to maintain their lifestyle and cover their debts? Retiree life insurance is the ideal way to give them financial protection and peace of mind.
Create A Larger Estate For Beneficiaries: Leaving money for loved ones is a wonderful way to show them how much you mean to them. A tax free gift will help them move forward without having to worry about financial hardship. As well, creating a pool of cash permits your executor to make things equal for all of your beneficiaries.
Protecting your assets and wealth into and during your retirement is important for you and your loved ones. If you are one of the many Canadians who struggle to save for your retirement, retiree life insurance may be the right financial planning solution.