Participating In Your Life Insurance – A Good Investment?

Life insurance is a vital and necessary part of every financial plan. But there are a whole lot of life insurance types and products out there – so making the decision about what’s right for your personal situation, budget and longer-term financial and retirement goals can be difficult.
In this column, we will focus on one type of insurance that you should consider if your needs and wants match this profile:

• You have a low to moderate tolerance for risk.

• You want protection for a lifetime with guaranteed premiums, guaranteed cash values and tax-free benefits guaranteed for your beneficiaries.

• You want an investment component included with your insurance coverage providing the potential for tax-deferred growth without the need to manage those investments.

• You want to build tax-advantaged savings that you can draw upon as needed for personal or business needs (although any cash values withdrawn from such a policy may be subject to tax).

You can get all of these benefits and a few more from Participating Life Insurance or also known as PAR Whole Life.., Participating Insurance combines life insurance with an investment component that also pays dividends.
PAR Insurance works like this:

• Your premiums go into an account with the premiums from all the other policyholders holding a PAR policy with that life insurance company.

• The amount of your premiums and the other coverages in your policy are calculated using long-term assumptions for death claims, investment returns and other factors. Your guaranteed premium, values and death benefit are based on these factors and are guaranteed for the life of your policy.

• The pooled premiums from all policyholders are invested in a balanced portfolio managed by investment professionals.

• When the actual returns on these investments are greater than the assumptions in place for the life of the policy, there is an account surplus that is paid to policy owners in the form of dividends (although policy owner dividends are not guaranteed).

• Dividends have a cash value that is credited to your policy and owned by you. You can use the dividends to: increase the policy’s cash value on a tax-advantaged basis, to withdraw cash from your policy or borrow against it, to buy additional insurance without the need to prove your insurability, or to lower your out-of-pocket premiums.

PAR insurance products are available with many coverage and payment options. Your professional advisor can show you how to tailor your insurance coverage to meet your needs today and tomorrow.

Your Cottage And Keeping It In The Family

Ahh, your cottage – a place of sanctuary, family fun and warm memories. But passing along a cottage to the next generation can set off complex financial and family issues. Here are some suggested steps to ensuring cottage continuity.

Know what your kids want - You know that cottage ownership is a big personal and financial responsibility that is not for everyone. Discuss this with your children and if any of them are not interested in inheriting the cottage, avoid family squabbles by making sure they are treated fairly in your will.

If you decide on shared ownership, keep in mind that it can be a difficult proposition. That’s why it can be useful to obtain legal advice when you put an agreement in place – about such things as who uses the cottage and when, who pays for repairs, maintenance and upkeep, and the other nitty-gritty aspects of joint cottage ownership – to avoid protracted disputes and misunderstandings.

Manage the tax burden - If your cottage has appreciated in value, your estate can face a significant capital gains liability that could force its sale by your heirs.

Capital gains taxes are based on the difference between the cost of your property and its current fair market value at the time of your death. The cost of your cottage is what you initially paid for it plus the value of any capital improvements you made to it over the years – a new deck or roof, for example, including the cost of anyone you hired to do the work for you – so keep your receipts to account for all these costs to help offset capital gains. General upkeep costs such as painting the cottage are generally not considered capital improvements.

Consider taking advantage of the primary residence exemption. You are allowed to name a primary residence that is exempt from tax on capital gain. The residence must be a property you ‘ordinarily inhabited’. It can be either your city home or your cottage. You are allowed just one principal residence at a time but you can choose to exempt the property with the bigger gain.

Have a succession plan - Include an effective strategy for passing on your cottage. One option is to purchase life insurance with tax-free death benefits that will cover the capital gains on your cottage and/or other expenses and avoid the forced sale of estate assets. Life insurance is also a good way to equalize an estate where one child wants to keep the cottage, whereas other children would prefer to sell it and divide the proceeds of sale.

Some of these estate planning options may not work in your situation, so it’s a good idea to talk to your professional advisor about your wishes for your cottage and the financial and estate planning options that will work best for you.

Take Advantage Of Tax Savings With Universal Life Insurance

If you're a prudent Canadian, you likely already know the value of life insurance and have your own life insurance plans in place. You know that the primary reason for buying life insurance is to have the funds available to help pay final expenses, to help ensure you family's financial future, and to help ensure your legacy is passed on as you wish.

What you may not know is this: By selecting the right type of permanent life insurance policy, you can save on taxes and accumulate a cash reserve that builds through the years - a cash reserve that is readily accessible should you need a quick money infusion for any reason.

This type of permanent life insurance is called "Universal Life Insurance" and here's how it works:

• Unlike other types of insurance, Universal Life Insurance includes two distinct parts. Each payment you make is divided into an insurance premium and a deposit into an investment (or investments) of your choice.

• The growth in the investment portion of your policy is considered tax-deferred by the Canada Revenue Agency as long as it is not redeemed. For that reason, Universal Life Insurance investments tend to enjoy faster growth than most conventional, non-registered investments.

• Most Universal Life Insurance plans allow you to choose the amount of life insurance you want and to adjust the death benefit and premiums to fit your changing circumstances.

• Your death benefit – including the full value of your investment account – will be tax free to your beneficiaries.

• And, you can access the cash reserve in your Universal Life Insurance policy if needed to pay for unexpected expenses. You can do this by permanently withdrawing some or all of the cash reserve; through a loan secured against the cash reserve of the policy; or by using your policy as collateral for a line of credit.

A Universal Life Insurance policy can be a good option for people seeking financial security while accumulating additional funds for use in an emergency or to carry out certain aspects of their financial plan (such as developing sufficient income for retirement). It should also be considered a long-term investment because the return on the investment portion, combined with the tax savings, deliver the best results when left to grow over time.

If you want insurance and long-term, tax-deferred investment growth, Universal Life Insurance can be a good option for you. A professional advisor can help you select the right policy with the right combination of insurance amount and investments options that fit your personal risk tolerance and your overall financial and legacy goals.