Personal Pensions, Health Insurance Plans, Loan Strategies Universal Life and other Niche Solutions

At Wealth Initiatives we look for out of the box solutions that provide our clients access to the little known strategies that will accelerate financial benefits in a tax efficient, or tax elimination, and secure environment.  The following are a few of the key strategies that benefit our clients:

Self Insured Tax-Free Health Account

The Canadian health care system is stretched to the max.  With the Baby-Boomer population reaching retirement, the strain on the health care system is not likely to improve.   At the current rate of Canada’s demographic changes, there will soon be two retired persons for every one working person.  The opposite is true today.  There is much need for financially planning for a long-term care or disability need in retirement. 
Wealth Initiatives looks with foresight to set up our clients a risk management strategy for potential health care needs.   The costs of purchasing disability insurance or long-term care insurance is often prohibitively expensive in one’s later years.   To purchase these policies is also a gamble, as one may or may not collect on these policies. 
The plan to self-insure is very desirable.  This can be done with a tax-free health account.  The tax-free account is offered by insurance companies.   It comes thru a universal life policy.   You can allocate money to the account and it is allowed to grow tax-free.  For it to grow tax-free you do need to have an estate insured benefit (life insurance).  This amount is minimized to keep the insurance costs down.  These costs are typically less than 1/3 of the income tax that would be payable on the investment growth.   The Income Tax Act has a provision for people to take withdraws from the insured tax free account in the event that you suffer from a disability or long term care need.  In the event that you are lucky and do not suffer a health event, and you do not use this money, the money will be dispersed to your beneficiaries in a tax-free manner.  The money may also be potentially accessed tax free accessed thru tax-free policy or bank loans. 

Life Time Tax Exemption Plan (LTEP)

Similar to the Tax-Free Health Account a lifetime tax exemption plan can be put in place.  Universal Life insurance can be used to grow investments tax sheltered for the life of the insured.  The insured does not need to be original owner of the investment funds.  The insured can be a spouse, a child or even a grandchild.

Benefits:

  • Reduce your current and future tax bill on non-registered investments
  • Tax sheltering eliminates unnecessary taxable income that can reduce your Old Age Security Clawback, and other government benefits.
  • Withdraw from your Tax Exempt Plan tax-free for a qualifying health care need. 
  • Loans are potentially taken tax-free and are paid back upon the death payout.

Chart illustrating a typical investment compared to a tax-exempt insurance account.


Based on $100,000 initial investment

Be Your Own Bank!

Take control of your financial future.  Do not take any down turns of the stock or real estate markets.  Get back every penny you pay for your cars, vacations, home repairs, business equipment, university education, and other major purchases, so you can enjoy life today without robbing your nest egg!  Be your own source of financing and recapture the interest you pay to the banks. 

What is your own bank?

  • Guaranteed tool to grow your savings.
  • Know exactly what the value of your plan is in any year.
  • Know exactly the minimum income you take from it and for how long.
  • You can take a predictable tax-free income in retirement!
  • You can borrow your money and it will continue to grow!

The tool do this is a specially designed type of life insurance, but you don’t have to die to use it.

How does it work?

  • You receive guaranteed growth in the account each year.  The total is called the “Cash Value”.
  • You do NOT lose any cash value when the markets crash.
  • The guaranteed growth is exponential.   It gets better every year.
  • You can receive dividends.  These are not guaranteed but they have been paid every year for about 100 years, even thru the depression and the crash of 2008.  In 2008 dividends were over 7% from companies we work with.
  • Every year the cash value and the dividends received are guaranteed to never be lost.

You grow your money guaranteed with the potential dividends building exponentially. 
You can borrow your money and pay the interest to yourself rather than the bank, while your money continues to grow and earn dividends.
Your money grows tax-free, can potentially be taken as income thru loans tax-free and ultimately passes on to your heirs tax-free.
You do not rely on government programs and are not forced to take income from an RRSP leading to loss of other government benefits such as Old Age Security, GST/HST credits, medical benefits, etc.

Insured Loan Strategy (Business or Personal)

You can have access to over 90% of the funds trapped inside your company on a TAX FREE basis.    Through an Investment Loan Strategy (ILS) you can borrow the funds from your company, and pay your own company back.  You company will be your own bank.  Utilizing the tax sheltered investment properties of a permanent universal life insurance policy (UL) you can protect your family and your business while you borrow the funds secured by the corporate investment in the UL.   This strategy will often qualify you for a tax-savings on the UL investment that can offset your life insurance cost.

BENEFITS

  • ACCESS TO OVER 90% OF YOUR MONEY TAX FREE
  • INSURANCE TO PROTECT YOUR FAMILY AND YOUR BUSINESS
  • TAX SAVINGS CAN OFFSET YOUR LIFE INSURANCE COSTS

How to Implement the strategy and is it right for you?  Contact us for your free review. 
See the Insured Loan Strategy Brochure.

Life Settlements

10% ROI
*exempt security offered thru offering memorandum
**Not guaranteed
Investment backed by Individual Insurance Policies from United States.  This is an opportunity to invest in life settlements.  The Wall Street Banks are looking to break into the life settlement market as their savior for the mortgage fiasco that has plagued the global economy.   This market has existed in Europe for almost 100 years and currently exists in the USA, Australia and now thru properly structured companies here in CANADA.
How it works?

  • American life policyholders realize they would rather sell off their insurance policy than continue to pay the yearly premiums. 
  • American Brokers find a buyer for the policy.
  • Investment companies (including wall street banks) purchase these life policies from elderly, ill health and others for a fraction of the policy death payout, but at a larger amount than the individual could cash them out from the insurance company.
  • These policies become the property of the new owner who maintains the policy by paying the premiums and ultimately receives the death benefit or trades them to another for a profit. guaranteed income for life, all the growth potential of the markets and you will never lose the money you invest.

Personal Pension Plan

business man

The Guaranteed Minimum Withdraw Benefit offers

  •  Guaranteed Income for life.
  •  All the growth potential of the markets.
  •  You will never lose the money you invest.

A GMWB is truly one of the best choices you can make when planning your retirement  in today’s uncertain investment climate.  GMWBs help minimize risk and emphasize rewards. Your retirement income is protected   from market downturns yet, when the market goes up, your income can also grow and is guaranteed for life.

GMWBs provide an excellent opportunity  for adding growth  when you are still saving for retirement . You will receive 5-7% bonus on your guaranteed income for every year you don’t make a withdrawal.

That means you can better plan for retirement knowing  that your guaranteed income can increase each year regardless of market conditions.

Most importantly, your retirement income is guaranteed for life  and you are always in control with the flexibility to change investments or access the money at any time. GMWBs give you the ability to plan with confidence.

For the kind of peace of mind  that makes retirement more rewarding , turn to Wealth Initiatives . We are with you every step of the way.

Universal Life (Insurance Tax Shelter)

From the national best seller “The 10 Secrets Revenue Canada Doesn’t Want You to Know!” by David M. Voth

Secret 8: Buy An Insurance Tax Shelter

The life insurance industry is a tax haven, and will likely always enjoy that status, because of all the special laws created just for it.  You can spend time wondering why, or you can use their heavily favored status to your advantage!
One popular strategy is the Life Insurance Tax Shelter.  Over the last 15 years Canadians have stuffed millions and millions of dollars into these programs.  The reason is that they allow either tax-deferred or TAX- FREE treatment of your investment dollars, with no risk.  It’s the best onshore tax avoidance investment strategy available!

What Is An Insurance Tax Shelter?
It is a plan issued by a life insurance company that allows you to deposit any amount of money and shelter all of the growth of the investment from income tax.  Each insurance company gives their plan its own unique name.

How Does It Work?

Revenue Canada allows insurance companies to issue these plans and maintain their tax-sheltered status as long as they satisfy certain conditions.  These plans are considered “exempt”  by Revenue Canada under sections 12.2 and 148 of the Income Tax Act.  The insurance company must maintain a minimum amount of life insurance on each plan to keep it exempt.  This insurance however, can and should be low cost decreasing coverage, only enough to keep the plan tax exempt.  The amount of life insurance necessary is based on a Revenue Canada formula and each plan must meet an annual test.

What Makes The Strategy Work?

Why do these plans out perform other non-sheltered investments?
-first, your earnings build-up TAX-FREE within the plan
-and second, the annual expense charges of the plan cost less than the tax, which would have to be paid on non-sheltered investment.
EXAMPLE: Assuming a 10% annual rate of return.  A couple, both age 45, in a 50% tax bracket would have to pay a total of $43,244 of income tax on the earnings of an investment of $10,000 per year over 10 years.
By contrast, if they invested $10,000 per year for 10 years into a tax-sheltered insurance account, earning the same rate of return; they would pay only $10,701 in total expense charges to the insurance company over the 10 years.
These plans are flexible, allowing you to vary the amount of your deposits and choose the type of investments, from GICs to investment fund indexes, with no restriction on foreign content.

How Do You Get Your Money Out?

When it comes time to take income, you can generate income from your plan in one of two ways:

  • You can make direct withdrawals, TAX-FREE from the tax-sheltered account, up to the adjusted cost base (ACB) of the plan without incurring any tax.  Simply stated, the ACB is equal to your deposits less the cost of insurance.  Once you have withdrawn the TAX-FREE portion of the account, Revenue Canada will consider any further withdrawals to be taxable.  Your insurance company can tell  you what the ACB is for your account so you don’t withdraw more than you want to.
  • Under a special arrangement, you can leverage your account with a bank.  This is the real benefit of an Insurance Tax Shelter!  The leveraging of your account is what allows the plan to outperform other investment vehicles, because a loan is never taxable!

How Is it Structured?

When it comes time to take income from your plan, the bank will accept your plan as security for a loan.  You can then make a single loan or a series of annual loans that you will use as income.  The bank will capitalize the loan payments, so that you never have to make payments on the loan.  Because the tax-sheltered growth within the plan continues to grow TAX-FREE the bank has an ever-increasing asset with which to secure each year’s loan.  The loan is eventually repaid from the TAX-FREE insurance payout, when you die.  And then, the insurance payout in excess of the bank loan balance is paid out TAX-FREE to your beneficiaries.  Since a loan is not taxable this plan allows you to EARN ALL OF YOUR INCOME TAX-FREE!


BONUS – If you die before you can spend or withdraw all of the money in your plan, the balance of the tax-sheltered account, plus the insurance amount, is paid TAX-FREE to your beneficiaries.  And, insurance payouts avoid probate.


The following is an example illustration supplied to me by a certified financial planner who represents one of the 35 insurance companies that offer Insurance Tax Shelters. Don’t get hung up by the numbers, because every illustration is unique, relative to variables such as age, gender, smoking status, interest rates, etc.  The purpose of this example is just to show the effect of TAX-FREE income that can be generated from these plans.  Your financial planner can generate a personalized example for you:


EXAMPLE:

This illustration assumes you deposit $13,500 for 18 years and then start to take a TAX-FREE bank loan starting in the 24th year.  The lending institution would extend annual TAX-FREE loans to you of $78,905 adjusted annually for a 2% cost of living adjustment for the next 31 years.

By contrast, if you attempted the same thing with an RRSP, depositing $13,500 for 18 years and then took the same level of after-tax income starting in the 24th year, you would exhaust your RRSP in as little as 9 years.  That is the impact of TAX-FREE income in retirement.  Plus with the Insurance Tax Shelter, since you had no taxable income, you still qualify for the maximum Old Age Security payments.

Now if we examine what would happen if we used a non tax-sheltered investment, the effect is even more staggering.  Using the exact same assumptions of: deposits, rates of return and income at retirement, a fully taxed investment would be exhausted in slightly less than 5 years.  That’s because it does not enjoy the tax-sheltered growth of either an Insurance Tax Shelter or an RRSP.


Another observation of the Insurance Tax Shelter reveals what happens if you don’t live until retirement.  Suppose you died after 10years of making deposits.  The Insurance Tax Shelter would provide $1,000,000 TAX_FREE to your beneficiaries.  While the RRSP would only be worth approximately $200,000, but Revenue Canada would grab half of it, leaving your family a TAX-FREE equivalent of only $100,000!

10 Times More For Your Family!

Look at it this way – 20 years from now, you’re either dead or alive.  If you’re alive, no other plan will pay you more after tax income.  And if you’re dead, no other plan will pay more money to your family – and do it TAX-FREE!


Retirement Income Strategy – When you start to use your assets to fund your retirement income, use the funds from your least tax efficient investments first.  As we saw from the example a non-registered investment can only provide income about half as long as an RRSP and an RRSP less than a third as long as an Insurance Tax Shelter.  Therefore, it is prudent to use funds from your non-registered (non-sheltered) investments first, then your RRSP assets and finally tap your Insurance Tax Shelter.  This strategy will give you the best bang-for-the-buck while you’re alive!  And after you die, all the TAX-FREE directly to your named beneficiaries, avoiding your estate and probate tax.

Who Else Says So?

Besides the insurance industry and me writing this book telling you how great these plans are at exploiting the tax laws, it is always good to know if there are other credible recommendations from other professionals.  Accountants are recommending these plans to their clients. 

This is what they are saying:

“Tax-sheltered insurance accounts are an excellent way of building assets for retirement.  At retirement, borrowing TAX-FREE income is a strategy that will maximize spendable income while avoiding benefit claw backs and reducing or eliminating tax payable.” – Terry Laughren, Chartered Accountant


“Individuals looking for tax shelters or deferral mechanisms may wish to explore the benefits that may be derived form an “exempt” life insurance policy.  Such policies may be a powerful tool in the tax-planning arsenal, particularly when many other tax shelters appear to have been curtailed. The returns from virtually TAX-FREE accumulation after the deduction of the insurance costs, compared to taxable accumulations, can, over a long period, be quite remarkable.” – Tax Planning Checklist, PriceWaterhouseCoopers
“The life insurance industry has developed attractive and highly sophisticated products that can help you meet two planning objectives at once: Having insurance coverage, and providing retirement income from tax-sheltered investment account at the same time.  Professional advice is a must when assessing the merits of this type of investment.” Tax Planning for You and Your Family, KPMG Accountants


“The past decade has seen tremendous change in the financial services sector – regulatory change has resulted in new competitors and a proliferation of unique and sophisticated products and services.  The insurance industry, once considered a sleepy backwater in the financial community, has recognized the need to change in order to survive and is now on the forefront on many new developments in products and services.” – The Canadian Guide to Wealth Preservation and Accumulation, Canadian Institute of Chartered Accountants.

I recommend these plans to a wide range of people.  From young people in their early 20’s, starting their first investment plan to seniors in their late 60’s, looking for ways to shelter money in retirement.  It’s hard to find situations where these tax-sheltered insurance accounts aren’t superior to other types of comparable investments.


Not all products offered by insurance companies are the same, and you should make sure the financial planner who you’re dealing with works with sound institutions.  However, assuming that is the case, you will be amazed at how much extra money you could end up with, down the road, and by not paying taxes as you go!  Life insurance tax-sheltered investments have very unique positions in the tax laws and should be investigated at every opportunity.

Let’s review the features and benefits of owning and Insurance Tax Shelter:

  • Deposit flexibility – You can change both the frequency and amount of your deposits
  • TAX-FREE build-up of earnings within the plan
  • TAX-FREE income through an innovative loan program when required
  • TAX-FREE money to heirs upon death
  • Creditor proof- money in the plan can never be seized by creditors
  • Complete choice of investments with no restriction on foreign content
  • Assets in the plan can be used as collateral
  • No mandatory or minimum income payments in retirement – If you don’t need the income you can continue sheltering the growth within the plan
  • Since income from the plan is not included in taxable income, the plan could prevent clawbacks on Old Age Security payments or other benefits

An Insurance Tax Shelter is truly a Win-Win-Win plan.  Your investment stays TAX-FREE while it is building up within the plan.  You will earn TAX-FREE income from the plan in retirement.  And when you’re gone, the rest of the money goes to your heirs TAX-FREE!  Revenue Canada never sees one red cent in this strategy.  In my books that’s WINNING!