{"id":594,"date":"2017-03-15T15:30:12","date_gmt":"2017-03-15T19:30:12","guid":{"rendered":"http:\/\/lifeinsurance-orleans.ca\/Life-Insurance-Blog\/?p=594"},"modified":"2018-05-20T00:13:48","modified_gmt":"2018-05-20T04:13:48","slug":"life-insurance-asset","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2017\/03\/15\/life-insurance-asset\/","title":{"rendered":"Is Life Insurance An Asset?"},"content":{"rendered":"

For<\/span> Canadians<\/span> there<\/span> are<\/span> multiple<\/span> benefits<\/span> of<\/span> including<\/span> life<\/span> insurance<\/span> as<\/span> an<\/span> asset<\/span><\/strong><\/em> class<\/span> to<\/span> compliment<\/span> your<\/span> existing<\/span> investments.<\/span> Providing<\/span> an<\/span> attractive<\/span> return<\/span> on<\/span> investment<\/span> is<\/span> one,<\/span> but<\/span> it<\/span> must<\/span> be<\/span> structured<\/span> properly.<\/span><\/p>\n

Tax Free Death Benefit<\/h2>\n

Life<\/span> insurance<\/span> payouts<\/span> to<\/span> named<\/span> beneficiaries<\/span> bypass<\/span> probate<\/span> and<\/span> are<\/span> private,<\/span> but<\/span> depending<\/span> on<\/span> the<\/span> type<\/span> of<\/span> policy,<\/span> with<\/span> the<\/span> latest<\/span> tax<\/span> changes<\/span> there<\/span> is<\/span> potential<\/span> for<\/span> some<\/span> of<\/span> the<\/span> payout<\/span> to<\/span> be<\/span> taxable.<\/span><\/p>\n

Most<\/span> permanent<\/span> life<\/span> insurance<\/span> policies<\/span> sold<\/span> in<\/span> Canada<\/span> are<\/span> issued<\/span> with<\/span> the<\/span> premiums<\/span> and<\/span> face<\/span> amount<\/span> guaranteed<\/span> for<\/span> life.<\/span> Therefore,<\/span> we<\/span> can<\/span> calculate<\/span> the<\/span> internal<\/span> rate<\/span> of<\/span> return<\/span> (IRR)<\/span> on<\/span> the<\/span> premiums.<\/span> For<\/span> policies<\/span> where<\/span> the<\/span> death<\/span> benefit<\/span> is<\/span> paid<\/span> out<\/span> tax-free<\/span> to<\/span> the<\/span> estate<\/span> or<\/span> beneficiary,<\/span> the<\/span> IRR<\/span> is<\/span> a<\/span> tax-free<\/span> percentage<\/span> rate.<\/span> The<\/span> only<\/span> variable<\/span> is<\/span> the<\/span> insured\u2019s<\/span> age<\/span> at<\/span> death.<\/span><\/p>\n

Minimum Funded Universal Life Insurance<\/h2>\n

In<\/span> the<\/span> case<\/span> of<\/span> a<\/span> minimum-funded<\/span> universal<\/span> life<\/span> (UL)<\/span> policy,<\/span> the<\/span> death<\/span> benefit<\/span> is<\/span> level<\/span> for<\/span> life.<\/span> The<\/span> sooner<\/span> one<\/span> dies,<\/span> the<\/span> greater<\/span> the<\/span> implicit<\/span> IRR<\/span> and<\/span> vice<\/span> versa.<\/span> For<\/span> example,<\/span> consider<\/span> a<\/span> healthy<\/span> non-smoker<\/span> male<\/span> aged<\/span> 50<\/span> paying<\/span> $13,296<\/span> annually<\/span> for<\/span> $1<\/span> million<\/span> of<\/span> life<\/span> insurance.<\/span> The<\/span> following<\/span> table<\/span> illustrates<\/span> the<\/span> guaranteed<\/span> after-tax<\/span> IRR<\/span> for<\/span> different<\/span> ages<\/span> at<\/span> death.<\/span><\/p>\n

As an example an<\/span> insured<\/span> man<\/span> dies<\/span> at<\/span> age<\/span> 85,<\/span> the<\/span> $1<\/span> million<\/span> payout<\/span> would<\/span> be<\/span> equivalent<\/span> to<\/span> the<\/span> premiums<\/span> earning<\/span> an<\/span> after-tax<\/span> compounded<\/span> return<\/span> of<\/span> 3.9<\/span> per<\/span> cent.<\/span> This<\/span> is<\/span> an<\/span> attractive<\/span> rate<\/span> of<\/span> return<\/span> given<\/span> today\u2019s<\/span> low<\/span> interest<\/span> rates.<\/span> But<\/span> is<\/span> this<\/span> a<\/span> good<\/span> investment?<\/span> In<\/span> addition<\/span> to<\/span> the<\/span> unfortunate<\/span> criteria<\/span> that<\/span> death<\/span> is<\/span> required,<\/span> there\u2019s<\/span> no<\/span> liquidity.<\/span><\/p>\n

Over-funded Universal Life Insurance<\/h2>\n

If<\/span> premium<\/span> payments<\/span> are<\/span> discontinued<\/span> the<\/span> policy<\/span> lapses<\/span> and<\/span> the<\/span> policy<\/span> owner<\/span> receives<\/span> nothing.<\/span> The<\/span> solution<\/span> is<\/span> to<\/span> over-fund<\/span> the<\/span> policy<\/span> above<\/span> the<\/span> base<\/span> insurance<\/span> cost<\/span> to<\/span> the<\/span> allowable<\/span> limits.<\/span> A<\/span> range<\/span> of<\/span> investment<\/span> options<\/span> can<\/span> build<\/span> cash<\/span> value<\/span> that<\/span> can<\/span> either<\/span> enhance<\/span> the<\/span> amount<\/span> paid<\/span> out<\/span> at<\/span> death<\/span> or<\/span> provide<\/span> retirement<\/span> income<\/span> by<\/span> leveraging<\/span> the<\/span> cash<\/span> value.<\/span><\/p>\n

What’s The Right Life Insurance For You?<\/h2>\n

Unfortunately,<\/span> many<\/span> people<\/span> have<\/span> the<\/span> wrong<\/span> type<\/span> of<\/span> coverage<\/span> for<\/span> their<\/span> needs<\/span> and<\/span> will<\/span> end<\/span> up<\/span> paying<\/span> out<\/span> a<\/span> lot<\/span> of<\/span> premiums<\/span> only<\/span> to<\/span> see<\/span> the<\/span> policy<\/span> eventually<\/span> blow<\/span> up!<\/span> For<\/span> instance,<\/span> for<\/span> those<\/span> who<\/span> purchased<\/span> UL<\/span> policies<\/span> when<\/span> interest<\/span> rates<\/span> were<\/span> eight<\/span> per<\/span> cent<\/span> or<\/span> more,<\/span> the<\/span> policy<\/span> investment<\/span> performance<\/span> has<\/span> not<\/span> kept<\/span> up<\/span> to<\/span> what<\/span> was<\/span> projected.<\/span> This<\/span> results<\/span> in<\/span> requiring<\/span> significantly<\/span> more<\/span> cash<\/span> infusion<\/span> to<\/span> keep<\/span> the<\/span> policies<\/span> in<\/span> force.<\/span><\/p>\n

In<\/span> other<\/span> cases<\/span> I<\/span> run<\/span> across<\/span> UL<\/span> policies<\/span> that<\/span> were<\/span> sold<\/span> based<\/span> on<\/span> yearly<\/span> renewable<\/span> term<\/span> insurance<\/span> cost<\/span> where<\/span> the<\/span> initial<\/span> premium<\/span> looks<\/span> very<\/span> attractive.<\/span> The<\/span> downside<\/span> with<\/span> these<\/span> policies<\/span> is<\/span> that<\/span> the<\/span> cost<\/span> of<\/span> insurance<\/span> goes<\/span> up<\/span> every<\/span> year,<\/span> eventually<\/span> reaching<\/span> the<\/span> point<\/span> that<\/span> the<\/span> premiums<\/span> become<\/span> very<\/span> expensive.<\/span> Most<\/span> people<\/span> end<\/span> up<\/span> quit<\/span> paying<\/span> the<\/span> premium<\/span> and<\/span> the<\/span> policies<\/span> lapse.<\/span><\/p>\n

Before<\/span> establishing<\/span> how<\/span> much<\/span> coverage<\/span> is<\/span> the<\/span> right<\/span> amount<\/span> for<\/span> your<\/span> situation,<\/span>\u00a0 we can do <\/span> a<\/span> full<\/span> needs<\/span> analysis.<\/span> With<\/span> today\u2019s<\/span> ever<\/span> increasing mortgages<\/span> and<\/span> debt levels<\/span>,<\/span> it\u2019s<\/span> important<\/span> that<\/span> families<\/span> do<\/span> regular<\/span> reviews<\/span> to<\/span> insure<\/span> their<\/span> existing<\/span> coverage<\/span> is<\/span> adequate<\/span> and<\/span> properly<\/span> designed<\/span> for<\/span> their<\/span> individual<\/span> situation.<\/span><\/p>\n

Take<\/span> the<\/span> time<\/span> to<\/span> talk<\/span> to<\/span> us LifeInsurance-Orleans.ca<\/a><\/span> about<\/span> all<\/span> of<\/span> your<\/span> finances<\/span> including<\/span> life<\/span> insurance,<\/span> wills,<\/span> investments,<\/span> business<\/span> structures,<\/span> etc.<\/span> to<\/span> ensure<\/span> they<\/span> are<\/span> structured<\/span> properly<\/span> for<\/span> your<\/span> individual<\/span> protection,<\/span> retirement<\/span> and<\/span> estate<\/span> planning<\/span> needs.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

For Canadians there are multiple benefits of including life insurance as an asset class to compliment your existing investments. Providing an attractive return on investment is one, but it must be structured properly. Tax...<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/594"}],"collection":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/comments?post=594"}],"version-history":[{"count":4,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/594\/revisions"}],"predecessor-version":[{"id":10195,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/594\/revisions\/10195"}],"wp:attachment":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/media?parent=594"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/categories?post=594"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/tags?post=594"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}