Financial Planning

What comes to mind when you hear “life insurance”? A monetary gift for your children? An old-fashioned financial tool? An unnecessary expense?

Life insurance is many things, including misunderstood. Many people have only a vague idea – and sometimes significant misconceptions – about how this type of insurance works and the value that it offers. In a well-rounded financial plan, however, life insurance is actually a key pillar alongside TFSA and RRSP accounts, real estate, wills and trusts, and other core financial tools.

If you’re a bit fuzzy on the benefits of owning life insurance and the ways that you can use it as part of your overall financial plan, read on as we share – and bust – three myths about life insurance.

Myth 1: I don’t need life insurance because I have a large investment portfolio

Having a large investment portfolio is of course a good thing, but you never know how the markets will be performing at the time of your death. If you happen to die while financial markets are weak, your estate may have to liquidate significant investments at low prices to cover any tax bills – for example, to pay capital gains tax when passing on the family cottage. Life insurance can play a complementary role alongside your investment portfolio by providing liquidity upon your death for your estate to pay this or other tax bills.

Myth 2: Life insurance is important only for young families

For young families, having life insurance policies for the parents is an important risk mitigation strategy to ensure the family’s financial needs will be taken care of if one or both parents die unexpectedly at a young age. Beyond this, however, life insurance can offer significant advantages at any age. For example, if you are older and have built up significant value within a whole life insurance policy, you can tap into this value and use it to generate cash flow by using your policy as collateral for a loan.


Myth 3: Life insurance is not tax efficient because premiums are not tax deductible

Although the premiums you pay are indeed not tax deductible generally, life insurance nonetheless offers significant tax advantages. For example, the cash value component within a whole life insurance policy can be invested and grow on a tax-sheltered basis. This means the investments within your life insurance policy can grow into a sizeable nest egg faster than if you were to hold the same investments in a non-registered account without preferential tax treatment. In addition, the death benefit of your life insurance policy is paid out to your loved ones on a tax-free basis upon your death, allowing them to benefit from the full value of the policy.

Tapping into the true value of life insurance

There are many myths about life insurance, including misconceptions about what it can and cannot do. The reality is that life insurance is a versatile tool that can play a valuable role in your overall financial plan.

Whatever the size of your existing investment portfolio, your current age and life stage, and your tax-related objectives, life insurance can be used strategically to advance your financial goals.

To learn more about using life insurance to grow your wealth and protect your loved ones, contact Rubach Wealth at (647) 349-7070.


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