Clients often ask me if I have life insurance. When you look at life insurance as an asset class (not just a death benefit) and consider the tax and investments benefits, it’s a financial tool I strongly believe in, which is why I invest $42,000 in annual premiums into whole-life insurance, which is corporately-owned and paid for.
1. No negative returns
I invested in my first policy in 2006, as I figured when the world financial markets implode (just as they did in 2008). I wanted to have a portion of my portfolio hedged from market returns. What people may not know about life insurance is that there are no negative returns and traditionally speaking, you can expect a long-term rate of return of 5% to 7%. During economic downturns (or anytime), you can also access the investment value inside the contract. This is so you can buy other investments at pennies on the dollar.
2. Protect your credit scores
In addition to no financial risk, I also wanted to create liquidity for myself. In particular, this was in case if I were in a situation where I couldn’t access traditional pockets of financing. I wanted something I could access that wouldn’t affect my credit score or debt service ratios. One of our financial goals is to own five properties in five years. My wife and I recently bought real estate and we used the investment value inside the policy as part of the downpayment. In doing so, it didn’t affect our credit score or debt-service ratios and therefor affect our financing.
3. Take money out tax free
Probably the most creative reason I have life insurance, is to take money out of my company tax-free for retirement. I believe every business owner should consider life insurance for this reason. What most people don’t know is that under current CRA tax rules, having your company purchase life insurance allows the cash inside the policy to accumulate tax-free and the funds can be accessed tax-free indirectly from your corporation.
4. Protecting loved ones
Lastly, and for more traditional reasons, there is the death benefit. Should anything happen to me, I don’t want to leave my wife Julia with debt or have her worry financially. If you’d like to have more of conversation on the tax benefits of life insurance and how it can compliment your investment portfolio, please contact us.
Jeff Devlin | Certified Financial Planner, Director
E & OE