You’re spot on! Keep your wealth growing uninterrupted as you borrow against your life value with the benefits of death benefit payouts in unforeseen event of passing away. All this gets passed onto your spouse/beneficiary who may be in need of this money 😃
David, a couple of questions. 1) does the Policy death benefit include the Policy cash value? 2) what is the assumption for interest rate growth of the increasing cash value, and can it ever be less value, or is it always guaranteed to grow like in this example? 3) what was the assumption fir the loan interest rate? Lastly, as another commenter asked, what happens to the cash value upon death?
I have been told if you carry a whole life policy and there's cash value when you pass, your heirs only get the face value of your policy. Eg: 100,000. face value ,maybe 50k cash value.Your heirs only get the $100k face value, the life insurance company keeps the cash value. True or false?
It’s possible although it’s problematic in the borrowing phase. The loan to value is based off of the cash value. In UL the cash value fluctuates with your investment choices. Because of this you can only borrow against about 60-70% of the cash value. To get 90% you would have to invest in GIC’s which would then slow the growth of your cash value. Whole life cash value doesn’t fluctuate so that’s why you can leverage up to 90%. Let me know if you have any questions
Could you possibly do an example with life insurance strategy with a more modest amount ? example only having 400,000 in your non registered account? Would this strategy still be worth it at this amt at the age of sixty 65? We have rrsps , tfsa, own our home, only have govt pensions coming. We are healthy thus far. 😊
Oh man that is such a big question. It really depends on the situation. I’ve had corp plans where we place the insurance personally and in the holding company. Depends on what the goal for the insurance is. Are you trying to pull money from your corp later, minimize the tax grind on a corp investment, equalization between heirs of your estate. Your question requires a deeper conversation
That’s a little complicated to explain here but let’s have a go. Even though the client stops paying after 6 years, contractually there are 20 years of payments in this example. Because the client is not paying the insurance uses its own cash value and annual dividend to support the payment. During this time the death benefit drops slightly and then increases when their are no further payments required.
If your corporation takes out a whole life policy on you with the corporation listed as the beneficiary (paid to CDA), how difficult is it to personally secure a loan against the payout? In that scenario, will the interest rates of the bank loan be so high that you are losing as much to interest as you would have paid for taxes? I.e. does loan interest take away the benefits of the tax savings?
Great question Jordan. The line of credit is secured against the cash value and not the death benefit. The short answer is the insurance wins. Paying out a corp dividend not only increases your personal tax rate it also could create a clawback of OAS. Another advantage is the tax deductibility of the line of credit when purchasing an income producing asset.
@@AaronWealthManagement maybe i misunderstood. I thought you could secure a personal loan using the death benefit as collateral, effectively withdrawing money from the corporation tax free? My understanding is that the death benefit is paid to the corporation's cda and then distributed to shareholders tax-free, presumably would be used to cover the debt. I just don't understand how the lender/bank could ensure they receive their money...
@@jordanharkness Hi Jordan. The process is different depending on who the borrow is; the corp or the shareholder. Here's the process: Corp Borrowing: Claim processed, bank loan is paid and CDA credit is the Total Death benefit minus ACB Shareholder Borrowing: Estate assigns alternative collateral, bank releases lien on Life insurance, claim is processed, total death benefit minus ACB credits the CDA, death benefit is paid to corp, Corp pays tax-free (CDA) and taxable dividend to the estate (up to the value of death benefit proceeds rec’d and estate uses funds to pay off the loan.
@@AaronWealthManagement Thank you. I think you answered the question with, " bank releases lien on Life insurance". So if the shareholder has borrowed the money from the bank, the bank places a lien on the corporation that exists until the time of the shareholders death and then the bank is able to collect at that time. How difficult is it to do that in practice? hmmm. That's a big help, I appreciate your time in responding fully.
If I have a UL policy for $150k death benefit and the annual insurance cost ( fixed rate for ever till 100 years old) for the $150k cost about $2000 and the UL provides you a guaranteed 3% return. I plan to put in $300k into the UL so it can guarantee me to have $9000 annual income inside the UL. After deducting $2000 annual insurance premium, I still have $7000 tax free income inside the UL annually. Can I take out the $7000 tax free money annually from my UL at the year 11th onward or can I withdraw $230k out from my UL by leaving only $70k there to generate 3% return at $2100 just to cover the fixed annual insurance cost at $2000? Will my plan work? Thanks.
You’re spot on! Keep your wealth growing uninterrupted as you borrow against your life value with the benefits of death benefit payouts in unforeseen event of passing away. All this gets passed onto your spouse/beneficiary who may be in need of this money 😃
David, a couple of questions. 1) does the Policy death benefit include the Policy cash value? 2) what is the assumption for interest rate growth of the increasing cash value, and can it ever be less value, or is it always guaranteed to grow like in this example? 3) what was the assumption fir the loan interest rate? Lastly, as another commenter asked, what happens to the cash value upon death?
Thanks for the info. To pull this off, you'll need money and good health. Hats off to people that has both.
Excellent advice! ✅
I have been told if you carry a whole life policy and there's cash value when you pass, your heirs only get the face value of your policy. Eg: 100,000. face value ,maybe 50k cash value.Your heirs only get the $100k face value, the life insurance company keeps the cash value. True or false?
Yes, I want to know this answer too. It seems like a scam to me.
What about the interest paid on money borrowed against the whole life insurance policy?
Is it possible with universal life policies?
It’s possible although it’s problematic in the borrowing phase. The loan to value is based off of the cash value. In UL the cash value fluctuates with your investment choices. Because of this you can only borrow against about 60-70% of the cash value. To get 90% you would have to invest in GIC’s which would then slow the growth of your cash value. Whole life cash value doesn’t fluctuate so that’s why you can leverage up to 90%. Let me know if you have any questions
Could you possibly do an example with life insurance strategy with a more modest amount ? example only having 400,000 in your non registered account? Would this strategy still be worth it at this amt at the age of sixty 65? We have rrsps , tfsa, own our home, only have govt pensions coming. We are healthy thus far. 😊
Does ownership an investment property disqualifies from GIS? Thanks.
Is it better to use this life insurance investment at a personal level or through a small corp. business and why?
Oh man that is such a big question. It really depends on the situation. I’ve had corp plans where we place the insurance personally and in the holding company. Depends on what the goal for the insurance is. Are you trying to pull money from your corp later, minimize the tax grind on a corp investment, equalization between heirs of your estate. Your question requires a deeper conversation
Whole life policies for the win! i focus more on these policies rather than rrsp. i stopped rrsp contributions, to me they are useless
Why does the Policy Death Benefit go down after the 6th year and continues to go down from there on?
That’s a little complicated to explain here but let’s have a go. Even though the client stops paying after 6 years, contractually there are 20 years of payments in this example. Because the client is not paying the insurance uses its own cash value and annual dividend to support the payment. During this time the death benefit drops slightly and then increases when their are no further payments required.
If your corporation takes out a whole life policy on you with the corporation listed as the beneficiary (paid to CDA), how difficult is it to personally secure a loan against the payout? In that scenario, will the interest rates of the bank loan be so high that you are losing as much to interest as you would have paid for taxes? I.e. does loan interest take away the benefits of the tax savings?
Great question Jordan. The line of credit is secured against the cash value and not the death benefit. The short answer is the insurance wins. Paying out a corp dividend not only increases your personal tax rate it also could create a clawback of OAS. Another advantage is the tax deductibility of the line of credit when purchasing an income producing asset.
@@AaronWealthManagement maybe i misunderstood. I thought you could secure a personal loan using the death benefit as collateral, effectively withdrawing money from the corporation tax free? My understanding is that the death benefit is paid to the corporation's cda and then distributed to shareholders tax-free, presumably would be used to cover the debt. I just don't understand how the lender/bank could ensure they receive their money...
@@jordanharkness Hi Jordan. The process is different depending on who the borrow is; the corp or the shareholder. Here's the process:
Corp Borrowing:
Claim processed, bank loan is paid and CDA credit is the Total Death benefit minus ACB
Shareholder Borrowing:
Estate assigns alternative collateral, bank releases lien on Life insurance, claim is processed, total death benefit minus ACB credits the CDA, death benefit is paid to corp, Corp pays tax-free (CDA) and taxable dividend to the estate (up to the value of death benefit proceeds rec’d and estate uses funds to pay off the loan.
@@AaronWealthManagement Thank you. I think you answered the question with, " bank releases lien on Life insurance". So if the shareholder has borrowed the money from the bank, the bank places a lien on the corporation that exists until the time of the shareholders death and then the bank is able to collect at that time. How difficult is it to do that in practice? hmmm. That's a big help, I appreciate your time in responding fully.
@@jordanharkness the process is not difficult at all.
If I have a UL policy for $150k death benefit and the annual insurance cost ( fixed rate for ever till 100 years old) for the $150k cost about $2000 and the UL provides you a guaranteed 3% return. I plan to put in $300k into the UL so it can guarantee me to have $9000 annual income inside the UL. After deducting $2000 annual insurance premium, I still have $7000 tax free income inside the UL annually. Can I take out the $7000 tax free money annually from my UL at the year 11th onward or can I withdraw $230k out from my UL by leaving only $70k there to generate 3% return at $2100 just to cover the fixed annual insurance cost at $2000? Will my plan work? Thanks.
I also would like to know james48 answers. Please and thank you.