Insured Retirement Plan (IRP)

Once your TFSA’s and RRSP’s are maximized, the Insured Retirement Stategy provides additional opportunities on tax sheltered growth for retirement savings. The strategy takes advantage of the tax sheltered growth inside policies during the accumulation/savings stage, then uses the tax free nature of life insurance death benefits to allow you access to those funds without paying taxes on the access.

How it Works

Funds are invested in a tax-sheltered environment inside the insurance policy. Upon retirement, rather than withdrawing the funds which would incur taxes, the policy is used for an annual loan amount which is used as supplementary retirement income. Loans are not treated as income for tax purposes. Upon your death, the death benefit (which includes the tax sheltered investments) is paid out tax free. In the end, you have tax-sheltered savings that you are able to access in retirement without paying taxes on the growth.

1

Accumulation Phase

You start with an individual universal life insurance or whole life insurance policy (depending on product availability and your risk tolerance). Prior to retirement the policy is structured in a fashion intended to maximize investments and minimize insurance costs.
2

Withdrawal Phase

At retirement, you stop funding the policy – no more premiums. At this point your policy should have substantial investments or cash values.

If you withdraw the accumulated funds, you will be taxed on a portion of the withdrawal. So instead, the policy is used as collateral for an annual loan. Loans are of course not income, and so are not taxed – thus allowing you to access to the value of those funds without paying taxes. The loan amount is not paid off during your lifetime, instead the annual loan is recapitalized. This annual loan amount is used as additional retirement income.

3

Upon Death

At your death, the death benefit consists of both the insurance component and the investment component. Because death benefits are tax free, this means that the investments inside the policy have now been paid out as cash, tax free. The death benefit is used to pay off the loan, with any remainder going to your beneficiaries.

Due to the drag on investments of the insurance costs and the illiquid nature of insurance policies, this strategy will not compare favourably to registered savings vehicles such as RRSP’s and TFSA’s. It is also not appropriate as your primary retirement income strategy. However once additional registered vehicles are no longer available to you, the tax treatment of insurance policies makes this compare very favourably against non-registered investment retirement savings.

Example:

Male age 50, $1,100,000 universal life policy. Assumed 4% interest on loan and 6% return on investments.  Values shown are not guaranteed and will vary by individual.  

  • Ages 50-60: Premiums of $50,000 annually for 10 years.
  • Ages 65-80: Loan (supplementary retirement income) of $114,000 after tax for 15 years.
  • If death at age 85; Loan is paid off and $1,004,135 death benefit paid to your beneficiaries.
  • If death at age 90; Loan is paid off and $1,616,110 death benefit paid to your beneficiaries.

Accumulation Phase

YearAgePremiumsAnnual Bank LoanTotal Death BenefitDeath Benefit to Beneficiaries
15150000011000001100000
25250000011000001100000
35350000011000001100000
45450000011000001100000
55550000011000001100000
65650000011000001100000
75750000011000001100000
85850000011000001100000
95950000011658161165816
106050000012355211235521

Withdrawal Phase

YearAgePremiumsAnnual Bank LoanTotal Death BenefitDeath Benefit to Beneficiaries
1565011440316505111536108
1666011440317485831515201
1767011440318523471495227
1868011440319621251476317
1969011440320782561458612
2070011440322011111442279
2171011440323310521427463
2272011440324684821414347
2373011440326136521402948
2474011440327218331348298
2575011440328314101288531
2676011440329443551225358
2777011440330710061168846
2878011440332070711114422
2979011440333506391059881
3080011440335009271004135

Final Phase

YearAgePremiumsAnnual Bank LoanTotal Death BenefitDeath Benefit to Beneficiaries
35850043526271314898
40900053119721616110
45950076289683132387
5010000109565885485810

Our advanced insurance specialists can provide you full details of how this can apply in your specific circumstances. Our first consultation starts with a detailed explanation of the strategy and information gathering. We’ll schedule a second consultation to provide and explain proposals. Lastly, we’ll step you through the application process. Start with an initial consultation.

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