Insurance and Investing

The appeal of Whole Life or Universal Life insurance as a retirement investment is the tax treatment of the accumulation account. This money grows tax deferred, which means that taxes are postponed on income and capital gains. Assuming that you need life insurance at all, the argument over whether whole life insurance is a good investment basically centers on the question of whether you would be better off buying an inexpensive term policy and separately investing the additional amount that the whole life policy would have cost. In making that decision, there are several issues that you should consider:

• Your ability to pay the premiums. First, you should determine how much insurance you need. Next, you'll need to check the premium costs for both term and whole life policies. If you can afford only the term policy, buy it. You should never skimp on the amount of your death benefit.

• Your federal and provincial tax brackets. The benefit of a tax deferral is only as valuable as the amount of taxes that would be deferring. The higher your tax bracket the more valuable the benefit is.

• The possibility that you might not be able to get affordable insurance later in life. As potential health issues increase with age, this could be of major concern. If it is, compare guaranteed renewable term policies with the price of whole life.

• Your willingness to shop for no-load (or, no commission) insurance policies. Unless you buy no- or low-load insurance policies, the costs of whole life erode returns so much that it almost always makes more sense to buy term insurance and invest the difference.

Unfortunately, there isn't a cookie-cutter answer when it comes to using life insurance as part of your investment portfolio. A clear benefit of investing in insurance products is the tax-deferred treatment of the cash accumulation part of the policy. Of course, the higher your tax bracket and the longer you have until retirement, the more valuable this benefit can be. However, a very important disadvantage of using life insurance as an investment is the high fees and expenses that make it difficult to compete with the returns of even ordinary security instruments, such as mutual funds. Keep in mind; mutual funds have no guarantees as a great number of people discovered in the recent financial meltdown.

Weigh the pros and cons carefully when deciding whether life insurance has a place in your investment or retirement plans. If it does, educate yourself and shop wisely, preferably opting for low- or no-load products that will meet your needs.

Segregated Funds

Segregated funds are similar to mutual funds. Both offer investors an opportunity to 'grow' their capital (the money they invest), and provide access to professional fund management. Usually, both allow investors to diversify with different fund managers and fund types.

Segregated funds offer many of the same opportunities and mandates provided by mutual funds but have one important difference - segregated funds are insurance contracts known as individual variable annuities and are, therefore, governed by the Insurance Act.

It is the insurance contract that provides a number of additional features and benefits that are not available with mutual funds.

Universal Life

How it works in simple terms.

Picture an insurance policy that is made up of two parts; (1) the amount you are insured for and (2) a savings account where your savings grow tax free.

Your money goes in...

You deposit your money on a monthly basis, and:

A portion of your deposit (contribution) is deducted to pay your premium for your insurance coverage.

The balance remaining after insurance costs is then deposited to the savings account where you have the choice of a variety of different investment vehicles to chose from, ranging from conservative to agressive.

Your contributions are put to work...

Inside the savings account, your money compounds in value according to your investment choices. The objective is to take advantage of the tax free status and maximize your contributions whenever possible.

You can choose a safe path that protects your principal.  You can even choose a customized blend of investments.

You come out ahead . . .

The entire pool of money, life insurance and savings account, is the amount your beneficiary will receive when the policy is redeemed when you die. Using universal life will help you shelter your estate from taxes and increase the value of the estate that you leave behind.

In addition, the tax sheltered fund can generate an income at retirement on a tax free basis. This tax sheltered insurance strategy can offer a substantial retirement income to supplement other plans such as your RSP.

Please call Michael today for quote; 778 389 5866