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Insurance solutions to help build and protect your wealth

During the process of financial planning, discussions will revolve around investments, savings, and retirement accounts. While these are crucial components of a robust financial strategy, one often overlooked tool for building and protecting wealth is life insurance. Traditionally viewed as a means of providing financial security to loved ones in the event of the policyholder's death, life insurance offers a range of benefits that extend far beyond protection.

Life insurance can serve as a powerful wealth-building tool, providing both immediate and long-term financial advantages.

Life insurance is commonly associated with death benefits, providing a lump-sum payment to beneficiaries upon the insured individual's passing. While this aspect remains fundamental, many insurance products offer additional features that can be leveraged during the policyholder's lifetime. These features can include cash value accumulation, tax advantages, and various investment options.

One of the key features of permanent life insurance policies, such as whole life or universal life, is the ability to accumulate cash value over time. A portion of the premium payments goes towards funding the death benefit, while the remainder is invested by the insurance company. This cash value grows tax-deferred, meaning policyholders can benefit from compounded growth without immediate tax implications.

As the cash value accumulates, policyholders have the option to borrow against it or withdraw funds, typically on a tax-free or tax-advantaged basis, depending on certain conditions. This liquidity can be invaluable for various purposes, such as funding education, supplementing retirement income, or covering unexpected expenses. Furthermore, the growth of the cash value can provide a source of supplemental income in retirement, offering a level of financial security beyond traditional retirement accounts.

Life insurance enjoys favorable tax treatment in Canada, adding to its appeal as a wealth-building tool.

Death benefits are generally received as tax-free income by beneficiaries, providing a significant advantage over other types of assets that may be subject to taxation upon inheritance. Additionally, the cash value growth within a life insurance policy is tax-deferred, allowing funds to compound more rapidly compared to taxable investments.

Moreover, policy loans and withdrawals are typically not subject to income tax, provided they meet certain criteria outlined in the tax code. This tax-free access to cash value can be particularly advantageous during retirement when minimizing taxable income is a priority.

Beyond its wealth-building capabilities, life insurance plays a vital role in protecting accumulated assets and preserving a legacy for future generations.

For affluent individuals, estate planning considerations become increasingly important, and life insurance can be a valuable tool in mitigating estate taxes and ensuring a smooth transfer of wealth to heirs. By naming specific beneficiaries and structuring policies appropriately, individuals can minimize probate costs and estate taxes, ensuring that their loved ones receive the intended benefits without undue delay or financial burden. Additionally, life insurance can provide liquidity to cover estate taxes or other obligations, preventing the forced sale of assets or depletion of savings.

Life insurance offers a multifaceted approach to wealth building and protection.

Beyond its primary function of providing financial security to beneficiaries, life insurance can serve as a tax-advantaged investment vehicle, offering cash value accumulation and liquidity during the policyholder's lifetime. By leveraging the unique features of life insurance, individuals can enhance their financial well-being, safeguard assets, and leave a lasting legacy for future generations.

Connect with your Raymond James advisor to discover how insurance planning can be a valuable asset in building and protecting your wealth for the long term.


This article is brought to you by Raymond James Financial Planning Ltd. (RJFP). Statistic, factual data and other information are from sources RJFP believes to be reliable, but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that RJFP is to be under no liability whatsoever in respect thereof. It is provided as a general source of information and should not be construed as an offer or solicitation for the sale or purchase of any product. Insurance products and services are offered through Raymond James Financial Planning Ltd., which is not a Member-Canadian Investor Protection Fund.