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build tax-advantaged savings that you can draw upon as needed for personal or business needs (although any cash values withdrawn from such a policy may be subject to tax).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

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.

Life Insurance Can Be Part Of Your Retirement Plan

The right kind of life insurance can do much more than provide a tidy sum to your heirs. It can be a good, tax-deferred place to stash the cash you have left over after maxing out your RRSP contributions.

There are two basic types of permanent life insurance that allow excellent flexibility in building tax-advantaged savings and accessing the cash inside them:

· Universal Life is a type of policy that lets you vary the amount and timing of premium payments as well as allowing you to save money inside your policy, protected from taxation.

· Whole Life is a cash value life insurance policy that provides a specified level protection for a premium that will not change unless the level of coverage changes. It also includes a savings feature similar to a Universal Life policy.

Insurance can be a source of liquid savings

As you pay the premiums on your permanent life insurance plan, the cash value of your policy increases in value over time on a tax-advantaged basis. You can access the cash value of your policy in three ways:

1. Withdrawal - You permanently withdraw some or all of the cash value of your policy. This reduces the future growth potential of policy cash values and may reduce the policy's death benefit. Every dollar is taxable, and the amount withdrawn cannot usually be recontributed.

2. Policy loan - You obtain a loan from your insurer secured against the cash value of your policy and the policy continues to grow uninterrupted. For tax purposes, your loan is considered to be first drawn against the tax-free portion of your policy until that component is reduced to zero. After that any remaining portion of the loan is taxable. Loans can be repaid (or the amount plus any accumulated interest will be deducted from the proceeds paid to your beneficiary), and you will get a tax deduction for your repayment up to the amount of any taxable income you declared when you took the loan.

3. Collateral loan - You use your policy as collateral for a line of credit and your policy is assigned to the third-party lending institution. This option does not result in any taxable income to you. You'll usually pay interest on the outstanding balance of the loan and, if you die, the lender receives repayment of the loan (and any unpaid interest) from the proceeds of the policy, and your beneficiary gets any remainder.

By giving you the ability to accumulate tax-advantaged growth in cash value and tax-free benefits to your beneficiaries, permanent life insurance can be an important tool for you to consider. But keep two things in mind: Make your choices based on an overall plan aimed at reaching your financial goals and remember that tax laws can change - so be sure to consult a professional advisor who can help determine what's best for you.