subject: Estate Planning | Just What Benefit Does Life Insurance Provide Rich Canadians? [print this page] The Way Rich Canadians Make use of Life Insurance Plans
Exactly how life insurance provides benefit for rich Canadians. There are several wealthy Canadians using life insurance policies to remain so much more than pure risk management. Should you include yourself amongst rich, or one of the emerging wealthy Canadians, then you too can begin to use life insurance plans in an enhanced way, and not merely concentrate on pure risk protection.
You see, the wealthy have diverse financial problems as compared with average Canadians. Pure financial risk - the chance of losing everything just because a breadwinner dies and the family cant pay the mortgage - is not there. Naturally there is a huge financial loss whenever a rich individual passes away too soon, and all their potential earning potential is fully gone, but they also leave behind adequate wealth for their family to live on. What they also leave is a financial blunder, in terms of taxation debts, business obligations and ownership problems, division of assets for surviving members of the family (and reducing family feuds over the proceeds of the estate), and even more.
Life insurance can easily minimize each one of these probable risks in a single product remedy. I mentioned eliminate, certainly not solve. To properly solve these issues, rich Canadians needs to be meeting with their lawyer and financial advisor to write a binding will, power of attorney, maybe set up a family trust and also other financial and tax management alternatives. The life insurance coverage is one part of this planning process. Lets check out how a life insurance plan for wealthy Canadians may add value to their plans.
Risk Management
Although the risk of catastrophic financial loss is probably nominal when dealing with rich Canadians, the family will experience a considerably larger financial loss in comparison with typical Canadian families. Indeed, they could have sufficient to live on, however the forthcoming earning potential and business opportunity of the dead is difficult to assess. In case the dead had produced his/her riches during their lifetime, how much more income can they have gathered? Suppose he/she had a longer period to nurture their business and continue working? It could be millions of dollars a lot more than they are really worth at the moment. This is also an enormous loss of future earning potential to the family that can and must be insured against.
Insurance providers in Canada are merely able to insure very rich Canadian to a maximum of $75 - $100 million. Which sounds like a good deal, however when Ted Rogers passed away (of Rogers Communications) the value of his life insurance policy was actually only a drop in the bucket for his entire estate. He was worth billions. Now, almost all rich Canadians are not in the Super Rich category, but rather very well off because of achievement in small to medium sized business endeavors. These types of wealthy Canadians are able to use a life insurance plan to its maximum to offset virtually any possible future earnings loss to their family.
Estate Planning
Estate planning for rich Canadians is definitely an advanced procedure. It involves division of assets amongst members of the family, business partners and philanthropic endeavors that are also being funded by the estate. Commonly estate planning entails far more than the Will. It calls for developing Trusts to administer funds as a continuation of the deceaseds heritage.
A life insurance policy will provide a big sum of tax free funds into the estate (in case the estate is the named beneficiary) so that there is instantaneous liquidity to satisfy all guarantees in the Will and fund the Trust. It may also inject a great deal of money, tax-free, into a business to fund a buy/sell deal to profit the family of the deceased. This may allow the lawyer and executor to easily process the will, reconcile the estate, transition business ownership, etc. There won't be any need to sell assets or draw savings out of the estate, as the life insurance proceeds supply the liquidity needed.
Tax Sheltering
Another significant reason wealthy Canadians obtain life insurance is because of the tax sheltering opportunity. The traditional government sponsored savings programs, like RRSPs and TFSAs permit a maximum of $22,450 (RRSP 2011 tax return) and $5,000 each year (TFSA). With a product just like universal life insurance the tax sheltering contribution limit is a lot higher. Presume we have a 45 year old male, non-smoker who needs $10,000,000 of life insurance. A universal life insurance policy would have a yearly cost of $106,748 in addition to the policy fee tax (about 2%, depending on your province of residence). The policy owner could possibly invest up to a maximum of $542,510 into the policy (fist year maximum). Which means that $424,911 would go into the tax sheltered investment section, and the $10,000,000 of life insurance would be in-force. More than 20 years, the policy cash value can amass $27,967,000 if the policy owner continued to invest the maximum into the policy.
This is significantly greater than an RRSP savings account! Upon death, in case the tax sheltered assets inside the universal life insurance plan were not cashed in, the life insurance policy pays out the $10,000,000 PLUS the cash value. In this case, if the rich Canadian passes away at the age of 65, the life insurance policy will pay out $44,271,700 - all TAX FREE. Any way you cut it this is a a lot more considerable financial planning tool when compared with an RRSP account. Rich Canadians get the chance to essentially increase universal life insurance and utilize it for the fullest - huge policies, maximum funded!
Manulife InnoVision Universal Life - Example Maximum Funded Policy for $10,000,000 - Illustration.
If youre a wealthy Canadian, learn the way a life insurance plan can add worth to your financial plans
If you have amassed sizeable wealth and also have never considered life insurance as a planning device, you really should. At Life Guard Insurance we have accessibility to the superior Estate Planning support teams of all of Canadas big life insurance companies. Our life insurance brokers could access their support and work with your lawyer and accountant to build the most effective life insurance plan to fit our clients needs.
Contact us today for a no obligation assessment about the value of life insurance for your financial plans.
by: Mitch Reynolds
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