Is permanent life insurance right for you? Test yourself.
Key takeaways
People who buy permanent life insurance are typically well-informed and understand how it provides greater wealth protection.
A permanent life insurance policy will always cost less than trying to save millions of dollars from your after-tax income.
Permanent life insurance is rarely the only financial tool wealthy Canadians need, but it should be considered the bedrock of any intergenerational family wealth strategy.
This checklist will help you decide if permanent life insurance is right for you.
After decades in the life insurance and financial planning industry, I can tell you who buys permanent life insurance and why. Plot spoiler: They have good, but not crazy amounts of income, they’re savers, and they’ve done the math.
If you agree with the statements below, you will benefit from permanent life insurance coverage, and you’ll never regret the investment.
1. I’m a natural-born saver
As a saver, you already have the good habit of paying yourself first. You carve out a portion of every paycheque and put it to work building long-term financial resilience. But here’s the twist: paying monthly premiums on a permanent life insurance policy is not the same as putting money into a savings or investment account.
In many ways, it’s better because:
In addition to a tax-deferred savings plan, you build a tax-free (and growing) insurance benefit for your family-full of guarantees and other contractual benefits.
If you become disabled and cannot work, a disability coverage rider lets you keep making premium deposits.
The insurer can’t cancel or change your contract, and it’s guaranteed to pay a growing, tax-free death benefit to your beneficiaries. Traditional savings don’t come with that kind of guarantee.
When your goal is to create resilient wealth that will be passed down from one generation to the next, you won’t find a more guaranteed way to do it than locking in permanent life insurance coverage and guaranteeing a tax-free insurance benefit.
2. I want to see the math
Imagine you want to leave a guaranteed $1-Million to each of your children. You would have to invest enough after-tax income to reach your target of $2-Million and live long enough for compound interest to do its job. That’s going to take some time, and you can’t guarantee the exact amount of inheritance you’ll be able to leave your kids.
You’ll also have to accept a certain level of risk and hope that you don’t die in the middle of a market slump that wipes out a portion of your investments.
On the other hand, you can take 15 years to pay off a permanent life insurance policy, leaving a guaranteed $2-Million in inheritance, and your lifetime cost will be around $300,00 to $400,000 depending factors like lifestyle. That’s much safer and cheaper than trying to amass $2-Million in after-tax savings.
3. I like simplicity
Passing wealth from one generation to the next is tricky business. Some things, like family cottages, get taxed when you pass them down. Other things, like ownership of the family business, can’t always be shared equally between siblings. However, the one-time, tax-free death benefit from a permanent life insurance policy can be divided precisely as you prescribe in your will with no complications. Your kids know what to expect, and they can build that information into their own family financial plan.
4. I want to put time on my side
Every year, the insurance company that provides a permanent life insurance policy sets money aside in what it calls the “cash reserve” of the policy. This money is invested with a very conservative mandate, and it grows year after year. As a policy owner, you can access that cash in a number of tax-free ways to cover expenses or give your kids a leg up early in life, when they need it the most.
In a 20-minute phone consultation, we can easily calculate how much additional wealth you could generate within the cash portion of a life insurance policy.
5. I really dislike risk
Saving money with the hope that it will lead to a big inheritance for the kids only works if you live long enough to keep funding the account. You may have the best of intentions, but if you die suddenly, just a few years into your plan, the kids won’t get very much. On the flip side, if you die a few years after purchasing life insurance, they get the full amount, tax-free.
By purchasing permanent life insurance, you’re essentially transferring all the financial risk onto the insurance company and taking it off your shoulders.
What’s next? If the law allowed you to build your entire financial plan around just one product—only one what would you choose? Here’s why it should be permanent life insurance. |
6. I like to plan a long way into the future
Permanent life insurance is rarely the only tool in the box for creating and keeping wealth, but it should be the foundation of any plan because it’s guaranteed to work. Other forms of wealth all have inherent risk.
The stock market tanks from time to time.
Real estate can be affected by local economic changes.
Businesses go broke all the time.
If your financial plan relies on assumptions set decades into the future, it may not be as resilient as you think. Only permanent life insurance offers a guaranteed, tax-free payout no matter what else affects traditional investment offerings.
7. I appreciate the flexibility to make changes to your plan
A good financial plan lets you make adjustments whenever you want. And it should allow you to add new components as they’re needed and discard anything you’ve outgrown. Once you commit to permanent life insurance as the bedrock of your financial plan, you can:
Increase coverage.
Add or change beneficiaries.
Add additional coverage riders.
Borrow against the cash portion.
Qualify for better lending rates.
The evidence is clear: the benefits of permanent life insurance improve over time because you can also tune the dials and make it more personal. If all of this makes sense to you, and you’d like to run some numbers, please get in touch. In 20 minutes, you’ll know how much more guaranteed wealth you can create for your future generations using less money, with far less risk.Call 905-361-2026 to book an appointment or email david@dcwealth.ca. |
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