A Life insurance policy, if structured properly, can provide sheltered growth and Tax-free payments for a longer period of time than your conventional RRSP. This concept is known as a Life Insurance Tax Shelter and uses a combination of long term investments and term coverage insurance wrapped within a permanent insurance policy.
The ensuing example may help describe this concept. Suppose your investments are earning a rate of return of 5% annually and each year you deposit $10,000 into a non-sheltered investment. You are also at a higher tax bracket, say 46.4%. At the end of 20 years you would have $347,192, but you would have to pay tax of $68,297 over the course of 20 years. If you were to shelter this amount in a properly structured life insurance policy your annual deposit would grow tax free and yield the same value. The cost to administer the policy over 20 years may be around $10,000, so by participating in the plan you have saved $58,297 in taxes. What sets a Life insurance tax shelter apart from your traditional tax shelters (i.e. RRSP) is the way the policy is initially set up and the manner with which the withdrawals are structured.
We have worked with many High Net Worth clients, small business owners, professional athletes and families to retire with a steady stream of income without having to pay those withdrawal taxes!
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