Don鈥檛 jump to the conclusion that because I鈥檓 writing about it I鈥檓 a life insurance pusher.
I don鈥檛 sell it, don鈥檛 have any friends who do and I鈥檓 trying to convince my wife to drop insurance she continues to have on my life costing over $300.00 per month.
About 15 years ago my wife surprised me on my birthday with a Harley Davidson motorcycle. And a huge bottle of Crown. Wouldn鈥檛 you know but she also tripled my life insurance!
That was smart, even apart from my new risky mode of transportation. Had I bought the biscuit at that time of our lives, my wife would have been left with three children under 10 and an unpleasant financial reality.
Now, not so smart. Hopefully some tears, but there won鈥檛 be financial hardship if I kick off tomorrow.
And the premium of over $300.00 per month is a good chunk of change. If we put that into an investment earning a 5% return, that would grow to over $265,000.00 by the time I鈥檓 reaching life expectancy at age 85.
Life insurance companies make serious coin insuring people鈥檚 lives. The only way you 鈥渨in鈥� with life insurance is if you die some distance before you鈥檙e likely to, beating the odds that are already stacked against you so that the insurance company gets a profit margin.
On that basis, my personal view is that life insurance is to be avoided unless it鈥檚 necessary.
I鈥檓 going to review some common estate planning purposes for life insurance.
The first I鈥檝e already talked about: If your income stream stops your family will not be able to maintain the same standard of living.
Keep in mind that there are a whole lot of other things besides death that can stop your income stream, temporarily or permanently. You鈥檙e much, much more likely to become disabled from work than you are to die. Ensure you have disability insurance!
Another purpose of life insurance in estate planning is to provide a bunch of cash to pay all the taxes that will have to be paid because of the deemed disposition of your assets.
I鈥檝e explained what 鈥渄eemed disposition鈥� means, and what I referred to as Canada鈥檚 capital gains fairy in a previous column published February 18, 2024. Entering 鈥淐apital gains fairy鈥� into a Google search pulled it up for me. Let me know if you have trouble and I鈥檒l e-mail you a link.
That recreational property you purchased for $150,000.00 is worth $2 Million when you die. Your estate will pay taxes on that massive capital gain.
Yes, the property can be sold to come up with the money to pay the tax, but maybe you intend for the property to stay in the family. If so, the proceeds of a life insurance policy would help pay for that tax.
But we still have the problem that life insurance costs money. If you die at or near life expectancy, you will have done better by investing those premiums to provide a tax paying fund.
There is one life insurance benefit that might be particularly attractive to those who are vulnerable to creditors. Life insurance policies, including their cash surrender value, are immune from creditors if the beneficiary is a spouse, child, grandchild or parent.
There are types of life insurance that front load the premiums (my words) and include an investment component. That policy can represent a significant asset which will be protected from creditors.
I am not a financial advisor or life insurance broker. I am not qualified to advise you about the ins and outs of life insurance products and how they might fit into your financial plan.
And I have not provided an exhaustive review of the many ways life insurance can be utilized in estate planning, including several ways that might be very important in the context of businesses (incorporated or unincorporated).
Ensure that you consult directly with appropriate professionals about your financial and estate planning needs. A column is no substitute for advice given by a fully informed and qualified professional.
Paul Hergott
Lawyer Paul Hergott began writing as a columnist in January 2007. Achieving Justice, based on Paul鈥檚 personal injury practice at the time, focused on injury claims and road safety. It was published weekly for 13 陆 years until July 2020, when his busy legal practice no longer left time for writing.
Paul was able to pick up writing again in January 2024, After transitioning his practice to estate administration and management.
Paul鈥檚 intention is to write primarily about end of life and estate related matters, but he is very easily distracted by other topics.
You are encouraged to contact Paul directly at paul@hlaw.ca with legal questions and issues you would like him to write about.
