Why You Need to Take Advantage of Permanent Life Insurance Before 2017

Last week we talked about the impact of Bill C-43 on the amount a person can invest in permanent life insurance.

The crux of the rule changes is this: the amount of money allowed as deposits into permanent life insurance policies in order to maintain tax exempt status is being adjusted.

In most cases you’ll, the rules are more restrictive.

After January 1st, 2017, new permanent insurance policies won’t allow you to invest as much as tax exempt income.

Therefore, if you want permanent life insurance, now’s the time to invest in permanent life insurance.  

Why Do I Need Permanent Insurance? A Story About Jim Pattison

Unlike term or temporary insurance, permanent life insurance doesn’t expire. So, if you’re purchasing a permanent life insurance policy that will pay out a death benefit to your family once you’re gone, then your insurance coverage has become an investment.

Who needs a tax free investment? I sure do!

And not only does this investment grow tax-free, which includes the pay-out upon death of the insured, but the owner of the policy can use its value during their lifetime to fund purchases.

And boy, do we have a great example for you. Ever heard of Jim Pattison?

The story starts with the understanding that Jim’s parents purchased permanent insurance for Jim when he was young. The policy grew on a tax-exempt basis and became a nice-sized investment when Jim was ready to make one of the first purchases of what would become his private enterprise empire. That’s when double digit inflation hit in the 80’s and Jim was having a hard time securing the financing to complete his purchase.

Here’s an excerpt from a letter Jim wrote describing the value he received from his permanent insurance at that time:

“If it wasn’t for the cash values in my life insurance policies, the bank may have decided against granting me the necessary capital to begin my first business endeavour.

I am certainly an advocate of life insurance as a vehicle to help a young person take advantage of business opportunities that may present themselves in the future.”

– Jim Pattison (read Jim’s entire letter.)   

How to Use Permanent Insurance Today

It’s worth discussing how permanent insurance is used:

1. To insure young children with permanent insurance coverage while their insurance costs are low. 

Like the example with Jim, the policy can become a useful asset for children in the future when they finance their first significant purchase, such as a home, a car, or an education.   Securing this insurance while children are young also helps with securing them insurance when they are healthy. We see many parents or even retirees who value the use of permanent insurance but can no longer qualify for it due to the onset of medical issues. 

2. As insurance for adults who have a significant amount invested in business or real estate (other than a home).

A business asset or a rental property will create a large tax burden once sold. Typically the goal is to transition that wealth to the next generation, but there is a tax bill to pay on transitioning this wealth. Permanent Life Insurance can efficiently pay the disposition tax upon death and allow the next generation to inherit the wealth without the tax bite.

3. Insurance for retirees managing their own money for the next generation.

These are retirees who have investments beyond their current retirement needs; why not place those funds in a tax exempt product that will grow tax free and payout tax free to the next generation?

Bill C-43 is modifying the Income Tax Act’s exempt test. You’ll still be able to invest tax exempt money in permanent life insurance policies, just not as much.

Unless you act before the end of 2016.

Ready to start? Give us a call.

Categorised in: insurance

This post was written by Marco Faccone